How Do Demographics and Climate Change Influence Financial Markets?


ZEW Conference on Ageing and Sustainable Finance

With 13 selected research papers, ZEW Mannheim hosted a conference on Aging and Sustainable Finance from April 6 to 8, 2022.

How do demographic change and climate change affect financial markets and their actors? In what ways do they influence financial decision-making, pensions, interest rates, and even the architecture and regulation of financial markets and institutions? To explore these questions, ZEW Mannheim organised a conference on “Ageing and Sustainable Finance” from 6 to 8 April 2022.

In addition to two keynote speeches by leading experts in sustainable finance and banking, the event featured presentations and discussions on 13 selected research papers by guests from more than ten different countries. Due to the ongoing COVID-19 pandemic, the conference was held in an online format.

Keynotes on sustainable investments and green (central) banking

In his keynote speech “Are investors willing to pay for sustainable investments?” Paul Smeets, professor of philanthropy and sustainable finance at Maastricht University, summarised key findings from several of his studies and experiments on sustainable investment behaviour. In a survey conducted together with a Dutch pension fund, he showed that many investors in Europe do indeed have preferences for sustainable investments. This fact seems to be underestimated by pension fund boards. His work also documents a relatively low sensitivity of investors in Europe to higher fees on sustainable funds. As a caveat, he emphasised that the willingness to accept higher fees can be exploited by financial advisors – a finding that regulators should bear in mind. Professor Koen Schoors from Ghent University gave a second keynote on green central banking. He described and discussed various policies to increase the banking sector’s contribution to the transformation towards a greener economy. For instance, he highlighted that policies that only penalise climate-damaging brown assets without simultaneously reducing their profitability could be counter-productive. He also stressed the importance for central banks to take climate change into account when conducting their monetary policy due to its effects on price and financial stability.

In the course of the conference, researchers presented selected papers on sustainable household investment and consumption behaviour, ESG ratings, the role of reverse mortgages for old-age income, the effect of experiencing macro-economic shocks on savings decisions, as well as the consequences of demographic and climate change on different asset classes. Among other things, approaches to the following questions were discussed:

  • How should socially responsible households optimally combine investment and consumption?
  • How does information about climate change affect the willingness to pay for carbon offsets?
  • How does the experience of macroeconomic shocks, such as financial crises and wars, affect wealth distribution and portfolio allocation? 
  • How does the interplay of standard saving motives, pension choices, investment returns and preferences, and frictions on the capital market influence lifetime saving across all main asset classes?
  • How does demographic change affect interest rates and risk premia?
  • What are the welfare effects of reverse mortgages? Who benefits the most from them?
  • Is there age discrimination in access to mortgages?
  • How do climate risks affect the housing market?

The conference provided an outstanding opportunity for guests to discuss the interconnection between two of the major long-term macroeconomic trends, demographic change and climate change, and to exchange ideas with interested researchers from all over the world.

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