The UK economy grew by all of 0.1% in Q4 2024. That calls for a celebration. Appropriately, we can toast British GDP growth with English sparkling wine. which now holds its own in even the most discriminating company. In fact, growing conditions are becoming so optimal, that England could be a suitable climate for high quality still chardonnay wine by the middle of the century. Goodbye Chablis, hello Sussex.
Before we become too exuberant, we should acknowledge that England’s vineyards are flourishing not because of some breakthrough technology, but because the planet is getting hotter.
The trajectory of English bubbly is thus more than a diversion for gourmands. Fine wine is an expression of climate par excellence. In the Burgundy region – to take just one example – we can compare the fresher, leaner more mineral Chablis compared to the richer, rounder, more fruit-driven Macon, located at a slightly more southern latitude, and thus that much warmer.
While each year brings vintage variation (with significant differences in quality), the overall style of major wine regions has stayed relatively consistent. Climate change threatens to reshape not just style, but the very viability of some of the world’s most storied winelands.
Of course, global warming’s effects are not limited to agriculture. It’s no great surprise that delegates at this year’s World Economic Forum named extreme weather as the long-term risk they are most concerned about.
But how does changing weather affect market sentiment? Are returns influenced by systemic shifts in climate or by individual weather events? The answer of course is both, in complex interrelated and unpredictable ways. After all, as the earth warms, extreme weather events increase in number and intensity.
However, investors don’t need epistemic certainty, they need a strategy. A recent paper by Bortolan et al. (2024) – Volatile temperatures and their effects on equity returns and firm performance – provides evidence that measuring temperature volatility – i.e. ‘increasing frequency and intensity of temperature’ – offers actionable information. Their research finds empirical evidence that “returns and profitability primarily respond to variability, rather than changes in the mean, driven by factors such as lower consumer demand, reduced productivity across industry sectors, and heightened investor and media attention.” In other words, significant shifts in temperature affect demand and output.
That implies a plausible investment approach: “a portfolio that shorts firms operating in states with high temperature variability, and goes long on those in less volatile states, generates 39 to 43 basis points in excess returns per month.”
In other words, as so often it is volatility, not some baseline level of uncertainty, that significantly moves markets (as we can see in, e.g., markets already settling into the new normal of Trump tariff threats).
Volatility presents opportunity. But what happens when changes to complex systems undermines our ability to hedge against risk (such as climate change rendering more areas of the earth uninsurable)?
All opinions, news, research, analysis, prices or other information is provided as general market commentary and not as investment advice and all potential results discussed are not guaranteed to be achieved. The information may have been derived from publicly available sources, company reports, personal research, or surveys. Past performance is not indicative of future performance. Trading carries risk of capital loss. Service available to professional clients only.
