Record high temperatures of 104°F hit the UK and globe—bringing serious business costs

Last week the UK recorded historic high temperatures of 104°F, while several other regions across the EU, US, and Asia experienced extreme heat warnings and massive disruptions. Although the ever-rising numbers on thermometers capture media headlines and public anguish, extreme heat events have serious economic implications that business leaders must pay attention to now. Though particular industries will feel some of these effects more than others, this list shows that heat waves will entail a host of disruptive side effects that will hurt bottom lines in far more complex ways than higher electric bills.

  1. Workplace injuries become more common. A study conducted from 2001 to 2018 found that hotter temperatures increase instances of workplace injury in both indoor and outdoor settings. In addition, heat events were also related to an increase in injury types unrelated to temperature (for example, falling from a ladder). Since workplace safety is a key metric and concern for businesses, this relationship will be crucial to understand and address.
  2. Traffic and car crashes spike. A 2015 study conducted in Spain found that car crashes went up 7.7% during extreme heat days. Risk of crashes was related to lower driver performance (caused by distraction, driver error, fatigue, and sleepiness) which were all direct or indirect effects of the extreme heat event. These crashes, the associated traffic, and costs will have negative effects on businesses and employees alike.
  3. Electric bills spike with widespread AC use and surging demand. Businesses and households alike ramp up air conditioning and fan use during extreme heat days, straining wallets as temperatures rise. Estimates put those higher electric bills at up to 83% higher than current averages by 2100, largely attributed to increased use and number of AC units around the globe.
  4. Construction projects see costly delays. High-heat days hurt the delivery, cost, and reliability of construction projects. These delays stem from the additional time and breaks required to avoid health issues and accidents among workers, the longer wait times required when materials take longer to set and cure in high-heat settings, and the increased cost from extended leasing periods and contractual penalties as delivery timing estimates are increasingly varied and unpredictable.
  5. People get worse sleep. Studies show that sleep length and sleep quality are worse at 36°C (98.8°F) than at 32°C (89.6°F), and were the worst at 100°F (the hottest temperature examined in this study). As many of us see triple digit days and nights, we will need to prepare and account for the many ways sleep deprivation could impact our performance and wellbeing.
  6. Insurance and reinsurance prices skyrocket. As extreme heat and fires become frequent occurrences, particularly in western Europe and the West Coast, homeowners and businesses alike will struggle to find insurance coverage and face high costs where they can get coverage. Traditional insurance and reinsurance models are struggling to cope with the high and increasingly frequent payouts for natural disasters like wildfires, but facility and property owners have to continue to protect their physical assets.
  7. Energy supplies can falter. During the 2003 heatwave in France, nuclear power production (equaling the output of four standard nuclear power plants) was suspended, because the temperature of the rivers used to cool reactors was too high to safely sustain operations and energy production. Aside from demand spikes and black outs, extreme heat events will threaten safe energy supply and cause reliability issues that businesses will have to face.
  8. Electric vehicles see decreased performance. Above temperatures of 95°F, electric vehicle range is significantly diminished, with average range reductions of 17% due to the high energy usage of air conditioning. As consumers and businesses turn to electric fleets, they will need to monitor developments in range extension and battery technology for sustained performance during extreme heat events.
  9. Infrastructure is directly damaged. Days-long suspension of service came following the Pacific Northwest’s heat dome last summer, as streetcar cables melted and asphalt roads buckled. These disruptions impacted commuters as well as populations seeking refuge in cooling centers accessible via mass transit and can impact all infrastructure and facilities in areas where heat will greatly exceed prior maximum heat forecasts.
  10. Water quality goes down. Rising temperatures around bodies of water can cause spikes in eutrophication (excessive nutrient richness in bodies of water that leads to harm to existing animal and plant populations) and algal blooms, while extreme heat waves simultaneously make interventions to combat this eutrophication less effective. Rising water temperatures encourage the spread of freshwater pathogens, increasing incidence of illnesses as well as harming drinking water quality.
  11. Cryptocurrency mining is suspended. Mining crypto requires massive amounts of electricity, which increases strain on the energy grid. During recent high heat days, many companies suspended mining at their facilities in Texas—where many crypto companies have moved due to generally lower energy prices and lower regulation. Though this eased the load on the grid to provide critical capacity for air conditioning use, it disrupted crypto operations and revenue.
  12. Wind energy generation can become less reliable. Some regions in Europe are seeing increased wind speeds, while other areas (concentrated in central Europe) are experiencing seeing diminished speeds, all impacting the efficacy of current wind farms and placement of future projects. Increasing fluctuation of wind patterns, caused by lower temperature differentials and general decreases in wind speeds, will challenge renewable energy generators and companies engaged in or interested in renewable energy purchasing.
  13. Trains run slower. Last year TransLink, the public transit agency in Vancouver, had to decrease train speeds and accept a lower on-time performance metric to keep steel rails from buckling. Extreme heat events can cause extreme compression and compromise to steel train rails, which can result in time-consuming and costly repairs as well as supply chain disruptions.
  14. Mortality in nursing homes increase. Extreme heat events cause increased mortality rates in nursing and senior care homes since seniors are also more susceptible to heat-related illnesses. Compounding this is the fact that many nursing and senior care facilities are older buildings without air conditioning and adequate HVAC systems, requiring costly but necessary replacements to address this public health issue.
  15. Air turbulence and flight delays increase. Higher temperatures mean thinner air and less lift, making takeoff difficult or impossible for smaller jets. Hotter atmosphere can also lead to increased turbulence. LaGuardia Airport may already need to lengthen its runway, as these rising temperatures make takeoffs more challenging. This will spell serious costs for airports and airlines, and big disruptions in business travel.
  16. Tourism revenue falls. Extreme heat waves and days strain tourism revenue in areas like Florida, where tourism represents 11% of employment in the state. Hits to Florida’s tourism businesses and the associated services catering to visitors will result in significant losses to the state’s economy, as well as other regions heavily reliant on hospitality, tourism, and service industries.
  17. Critical cotton supply chains fail. As cotton crops plummet from heat and drought, supply and affordability issues will arise across industries ranging from fashion to healthcare. Beyond its use in clothing production, cotton is a key component in many basic consumer products like diapers, tampons, and hygiene items, which all could see price increases as a result.
  18. ER visits spike and hospital systems are strained. Last summer’s Pacific Northwest heat wave saw massive increases in emergency visits for heat- and non-heat-related causes. Studies have found that extreme heat days correlate with increased ER visits for mental health crises such as substance abuse cases, depression, and anxiety. As some of the costliest interactions that healthcare systems face, hospitals and care providers will have to prepare to deal with the associated strain from extreme heat events.
  19. Staple food prices go up. Extreme heat causes increased food costs and reduced crop yield for major staples such as corn and soybeans. The US produces 41% of the world’s corn and 38% of soybeans, and studies show that there is a steep decline in yields of these crops past temperatures of 32C, leading to supply and access issues globally.
  20. Meat production and livestock populations suffer. All domesticated livestock species are severely affected by heat stress during heat waves, resulting in lowered productivity, reduced fertility, and more. This will cause increased meat prices, but also increased antibiotic usage to combat livestock illness—overuse of antibiotics in livestock can lead to rises in antibiotic resistance and food-borne illness.

For those living and working in more moderate climates, these impacts may seem far-off, but for large swaths of the globe, these are becoming palpable annual realities. These will also be felt more acutely in cities and regions where triple digit temperatures were once considered impossible but are rapidly becoming a new normal. While businesses cannot singlehandedly stop warming, leaders can chart, plan for, and mitigate the ways that heat events will hurt their employees, capital, supply chain, and revenue streams. Mitigating climate change is now only one expense to businesses—adapting to extreme heat is another costly piece of the puzzle. For leaders who are ready to tackle this new business challenge, The Climate Board can serve as a valuable resource for navigating the climate action journey.

Optimizing vehicle circularity could increase profitability by 50% across the value chain

The World Economic Forum and Accenture recently released a new study modeling and analyzing the financial and environmental impacts of optimizing vehicle life cycles using a circular economy approach. By moving to a vehicle value chain that is fully circular, the industry could achieve massive emissions reductions—up to 75% emissions reduction, consistent with Paris Agreement reduction goals for 2030—and divert both valuable materials and waste from landfills. The study found that a shift to a fully circular value chain could increase overall profitability by 50% and tap into revenues that are 15 to 20x higher than the car’s sales price.

The term circularity has become one of the latest buzzwords in the ESG space and seems to have many definitions. But what does it actually mean? The circular economy concept refers to a system that decouples economic activity from use of finite resources. We currently operate in a linear economy; we create, sell, use, and dispose of products with little-to-no recapture of existing value or material. The circular economy would hinge on three principles: designing out waste and pollution, keeping products and materials in use, and regenerating natural systems.

Many companies are taking early steps toward circularity—often in the form of educational campaigns to tell consumers how to properly recycle or dispose of products, or programs that offer recycled-content versions of traditional products. While these steps are promising, they are only the tip of the circularity iceberg.

So what would movement toward a truly circular economy look like? Let’s take a closer look at vehicles. A “circular” car would have completely maximized materials efficiency. This vehicle would produce no emissions, no waste, and no pollution during production, use, or disposal. Largely achieved through early changes to manufacturing and design, since over 80% of a product’s environmental impact is decided during the design stage, these circular vehicles would also be completely modular. While shifting to modular design would initially present a cost increase, it would enable profits of 1.5 to 4x through repairs, and profits of 2 to 5x during recycling and end-of-life processing. Beyond design and production, a fully circular vehicle value chain would offer sale, but also emphasize leasing, rental, and “as-a-service” use options to maximize the amount of efficient use of each vehicle. Finally, nearly all components of the car would be reused and recaptured at the end of its life, and the cycle would start again.

Circularity is already coming into play in other industries too. PepsiCo, in order to meet a 2030 target of producing 50% recycled material packaging, had to take a creative approach to material sourcing. Since global plastic recycling rates are so low, PepsiCo’s target would’ve been impossible to attain without a drastic intervention, but by investing in recycling infrastructure globally and partnering with governments, waste management companies, and NGOs, the company is sourcing new material and lowering the negative effects that their products generate at disposal and end-of-life stages. In addition to these efforts, they are promoting low- and no-packaging items as well as offerings like the SodaStream, which allows consumers to avoid single-use servings in favor of a carbonated beverage machine.

It is clear that these transformations will not be cheap nor easy, and will require involvement of the full value chain, buy-in from many external stakeholders, and a frank reconsideration of how businesses operate. But the movement from a linear to a circular economy is inevitable. Those who move to circularity early—and who do it well—can capture the type of gains to profitability that this transformation holds. Companies can be leaders or be dragged along by other stewards that seize the most benefit. Business leaders must take a nuanced look at where in their value chains they can push for circularity, and prepare themselves to face hesitation or opposition from incumbent stakeholders.

In the most “sustainable” cities, per capita consumption-based emissions constitute up to 12x their Scope 1 emissions

In the so-called “most sustainable cities,” per capita consumption-based emissions constitute far more than per capita Scope 1 emissions. Similarly, evidence suggests that, among US firms, an increasing proportion of Scope 3 emissions compared to Scope 1 points to outsourcing. Without proper accountability outside of Scope 1, both responsibility and emissions are misplaced. Incentives should be put into place to improve transparency and re-evaluate how we define what makes a city or company “sustainable.”

What do the most sustainable cities have in common? Apparently, that their Greenhouse Gas emissions from consumption constitute far more than their Scope 1 emissions on a per capita basis. This probably comes as little surprise. When you picture a sustainable city, you might imagine a place with clear air and high quality public space (i.e., a consumer city that imports rather than produces many of its goods and services). But maybe this relationship should be shocking. Shouldn’t the most sustainable city be the one that is circular and self-sustaining, internally managing its food, water, and energy needs?

Based on data and rankings from Corporate Knights Sustainable Cities Index, we find that among the cities ranked highest in sustainability, per capita consumption-based emissions constitute as much as 12x their per capita Scope 1 emissions[1]. In other words, in cities deemed the most sustainable—including Stockholm, Oslo, and Copenhagen—direct emissions (Scope 1) tend to make up a very small portion of total per capita emissions. This particular ranking is not unusual, as these places consistently appear at the top of sustainable city lists. And it’s not to say these cities are not sustainable—after all, some (though not all) do have low per capita consumption-based emissions. But maybe there’s more to unpack about the relationship between direct and indirect emissions.

Before diving into why we should care about what counts as sustainable, it’s worth noting and understanding a parallel that exists at the corporate level. A recent study found that, among US firms, the proportion of Scope 3 emissions relative to Scope 1 is rising. Further evidence suggests that firms are outsourcing their emissions to foreign suppliers (controlling for factors like operating efficiency and assets). There are a number of reasons a company might outsource emissions, such as maintaining social reputations domestically and avoiding regulatory stringency.

So, why does it matter that the per capita emissions of “sustainable” cities are largely consumption-based, and that companies are outsourcing emissions? As lecturer Marcelle McManus puts it, just because they are meeting certain targets, doesn’t mean they aren’t responsible for emissions elsewhere. Without the proper incentives to drive accountability, companies and cities may be less likely to invest in green technology or reduce emissions locally. Furthermore, these factors make it possible for companies and cities to hide (intentionally or unintentionally) behind their impressive Scope 1 performance (which is the most observable), while remaining silent on Scope 3, where much of their emissions lie.

The answer to these challenges lies in regulatory and reputational incentives. Regulatory changes—like the SEC’s proposed climate risk disclosure rule—can mandate the disclosure of upstream and downstream Scope 3 emissions. Not only would this compel companies to reassess efficiency within their supply chains, but also, it could reveal reputational incentives (as observable efforts expand to include Scope 3).

Additionally, it is worth re-evaluating what we consider “sustainable” and paying more attention to hidden emissions. Perhaps the most sustainable cities and companies are not the ones we think they are.

 

[1] The report defines scope 1 GHG emissions as those occurring within the city boundaries. Consumption-based emissions are those (1) from final consumption and (2) embedded in both domestically produced and imported goods and services that ultimately are consumed within the city.

 

3% predicted decline in global GDP by 2100 without climate mitigation

The relationship between climate action and economic health is complicated. Periods of decline often resultin short-term emissions reductions while simultaneously hindering long-term systematic change and the development of technological solutions. On the other hand, climate change itself may fuel economic decline; a report published in Science in 2017 predicted that if carbon emissions continue on the current trajectory, we’ll see an irreversible 3% drop in the world’s GDP by the end of the century. In 2008, when the economy took the deepest plunge since the Great Depression, the downturn pulled climate and sustainability concerns with it as both businesses and consumers shifted their attention to making ends meet and pushed longer-term problems to the back burner. Policy momentum suffered as well; COP15 in Copenhagen generated small, unenforceable carbon reduction commitments instead of the anticipated binding limits on emissions. Now fears of another recession are growing, and rising inflation has proven unresponsive to the Fed’s efforts to gently cool the economy. This begs the question: will the next recession present another huge setback in the race to drive down carbon emissions and mitigate economic consequences in the decades to come? Despite many uncertainties, we’re optimistic that 2022 will be nothing like 2008, either for the planet or the economy. For one, some experts predict that if a recession develops, it will be far less significant than the crisis of 2008. Moreover, the corporate climate and ESG landscape has grown at a remarkable pace since then, and though a downturn may not result in a transformative green recovery— as many had hoped in the early days of the COVID pandemic— there are guardrails in place to ensure sustainability remains among the majority of business leaders’ key priorities:

  • Urgency. The effects of climate change are taking shape with more force and speed than expected even a few years ago, contributing directly to our inflation and supply chain woes. Costs to human life and global development are already piling up, and executives face escalating pressure from grassroots activists, consumers, investors and supply network partners to take appropriately swift action to decarbonize their value chains.
  • Accessibility. Technological climate solutions, from cleaner energy to carbon capture and storage, have forged ahead on the path to widespread use. The costs of renewable energy generation, for example, are reaching parity with more carbon-intensive mainstay technologies, a vast improvement from 2008, and electric vehicles can compete with conventional vehicles in much of the U.S.
  • Collaboration. Global coalitions and information-sharing networks dedicated to climate and sustainability have sprouted, from the U.N’s Race to Zero to the We Mean Business Coalition, making it easier than ever for business leaders to learn from and build on the progress of their peers.
  • Planning. The business infrastructure tailored to decarbonization is more comprehensive than ever before. SBTi wasn’t founded until 2015, and countless companies are just beginning to deploy capital and talent to facilitate decarbonization, from empowering internal Chief Sustainability Officers to engaging organizations like The Climate Board and external consulting firms that offer climate expertise and business guidance.
  • Transparency and Accountability. Promising net-zero is crucial but no longer enough. A tide of climate journalism, watchdog NGOs, and higher expectations from stakeholders mean that companies’ climate promises face greater scrutiny than ever before. Relatively new norms of ESG reporting and disclosure through platforms like CDP and TPI are pushing companies to uphold their commitments to reduce emissions or face real-world losses.

Investing in science-aligned decarbonization strategies may seem easier in periods of economic growth, when the specter of climate change-fueled decline looms larger. In reality, businesses will inevitably be faced with cyclical pressure to shed lower-priority spending, which historically included environmental sustainability investments. We suspect this ecosystem of climate actors and motivators is strong enough to withstand this round of economic challenges.

contact us