Salience triggers action

I always say that if you want people to take action, the problem needs to be salient. Climate change, for example is one of these unsexy risks that have not been salient to society for many years. But the devastating wildfires in Australia, as well as the other catastrophic weather events around the world have made the risks of climate change salient to all of us. No wonder public movements to fight climate change are gaining momentum worldwide.

In Australia, for example, the Guardian newspaper runs regular polls. In 2013, 27% of Australians believed that bushfires are linked to climate change. By November 2019, when bushfires started to destroy the country, this number had increased to 43%. The share of voters who believe that the government should do more to fight climate change rose from 51% in March 2019 to 60% in November.

If these numbers seem low to you, then this has a reason. The Australian media landscape is dominated by companies owned by conservative billionaires like Rupert Murdoch and influenced by wealthy activists like coal magnate Gina Rinehart. This means that in many media outlets in Australia the link between climate change and the bushfires has been downplayed. Farcically, Rupert Murdoch claimed at the News Corp. annual shareholder meeting in November that “there are no climate change deniers” in his company. Yet, a day later Australia’s largest newspaper – owned by News Corp. – published an op-ed by climate change denier Ian Plimer claiming that man-made climate change is a hoax. In such an environment it is difficult to have a public discourse about the effects of climate change and potential measures to fight it.

But as the wildfires rage on and more and more people in the country experience the damage first hand, distractions and denials become increasingly ineffective. And politicians that try to downplay the disaster quickly lose the confidence of voters. Prime Minister Scott Morrison’s approval rating dropped from 45% to 37% in one month between early December and early January, while his disapproval rating climbed 11 points to 46%.

That an exceptionally hot summer can trigger permanent shifts in the attitudes of an entire country has been shown by Anders Anderson and David Robinson in the case of Sweden. I have written before about the incredible trove of data available in Sweden that allows researchers to discover links between attitudes, investments and daily habits that are impossible to investigate in other countries due to a lack of data.

In 2014, Sweden experienced a record-hot summer. The Swedish Meteorological and Hydrological Institute (SMHI) recorded new average annual temperature records in 47 out of 100 weather stations in the country. The ten most northern weather stations (all north of the Arctic Circle) counted between 6 and 26 days with temperatures above 25°C. Normally there would be zero to five. In July, the country experienced the worst wildfires since the 1950s that took several months to extinguish.

Spot the hot summer: Temperature anomaly in July in Sweden

Source: Anderson and Robinson (2019).

Thanks to a survey the researchers conducted and the data they got from the Swedish Pension Authority, it was possible to track changes in attitude towards climate change and changes in investor portfolios in response to the wildfires and the hot summer of 2014.

First of all, there was a significant upsurge in newspaper articles discussing climate change that persisted at least until 2017 (when their study ends). The beliefs and habits of Swedes also changed significantly in response to the wildfires and hot summer. There was a marked uptick of people who overweight the likelihood of future climate disasters – sometimes to a degree that is not warranted by scientific evidence. And this change in beliefs had real life consequences. Swedes who were alarmed about climate change and natural disasters were 6.7% more likely to recycle more in the future, 16.7% more likely to spend more money buying green products, and 15% more likely to emphasise the protection of the environment over economic growth.

And they put their money where their mouth was. In their pension portfolios, Swedes started to shift money out of traditional funds and into ESG funds. Between 2015 and 2017, investors who had less than half their portfolio invested in ESG funds before, were 40% more likely to trade existing holdings into ESG holdings and 34% more likely to hold ESG investments in their pension portfolios overall. Investors who had more than half their portfolio already in ESG products were still 20% more likely to trade into ESG products and 32% more likely to hold more ESG products. The behavioural changes in their investment portfolios persisted for a long time. Even in 2017 when their study ended, the researchers could find these preferences for green investments.

While Sweden is not Australia these numbers indicate at least one important thing: The wildfires will likely cause a significant shift in public opinion and public behaviour. Increased investments in ESG products over the coming years are likely to be one outcome of these wildfires.

However, this might not necessarily be a good thing. In a loose series, I will spend the next four Mondays investigating the pitfalls and potential risks of ESG investing from different angles. Stay tuned…