Are climate risk pundits shaping financial return expectations?

Today marks the kick-off of the Euro 2024 football championships.  It’s therefore appropriate that this article deals with the phenomenon of punditry – the expression of expertise in a particular subject or field.  Sports is a magnet for pundits.  Over the next few weeks, old footballers and glam media personalities will squat on our TV screens, providing color commentary on every team, match, and tap of the ball.  In bars and households around the world, armchair pundits will do the same.

But punditry has long spilled beyond the confines of sport.  Political pundits are dime-a-dozen in the US and UK, and the internet has long been the home of questionable punditry on all things financial – from penny stocks to bitcoin.

A recent study by Rob Bauer, Katrin Gödker, Florian Zimmermann, and Paul Smeets suggests punditry has even found a home in climate-related financial analysis. 

Or perhaps that should be “punditry of punditry”.  Their study finds that financial experts’ views of how other experts think about climate risks has a tangible effect on their quantification of climate-related financial impacts. To put it another way, second-order beliefs have a causal effect on experts’ climate-adjusted return expectations. 

Confused?  Let’s get into the study proper. But first, it’s important to caveat from the get-go that this is not a scientific study (since it’s not replicable), so keep that in mind as you read on.