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.

Just Released: Accelerating Decarbonization of Construction and Infrastructure.

The Climate Board is proud to announce the release of its latest research report, Accelerating Decarbonization in Construction and Infrastructure: Five Recommendations for Industry Leaders. Focused on the most common barriers to widespread adoption of low carbon materials, methods, and technologies, this report offers a proactive and practical vision for migrating the construction and infrastructure industries toward a decarbonized future. Leaders throughout project value chains will benefit from clearly stated strategic recommendations illustrated by real-world case examples.

With this report, The Climate Board continues its service to the construction and infrastructure industries. The insights in the study are the fruit of ongoing research efforts involving dozens of research calls with industry experts, extensive tracking of market and technological developments, and network-building activity including a multi-stakeholder roundtable held in March 2022 in partnership with Transurban, a founding member of The Climate Board.

Insights from the report:

  1. Scalable progress depends on incumbent leaders, not on external disruptors. Companies expecting the overall pace of decarbonization to be set mainly by technological breakthroughs or by regulatory imperatives are consigning themselves to passive positions. Active evolution driven by today’s leaders is critical if decarbonization is to benefit the business in the long run.
  2. Most companies have practical opportunities to build momentum toward decarbonization without undermining core business objectives. A bit of savvy in project selection and forethought in initiative planning helps companies build the skills and experience necessary for eventual large-scale decarbonization.
  3. Carbon-conscious conversations need to happen earlier and more often. In too many cases, emissions targets or other environmental concerns are sideline concerns held only by a few stakeholders. Certain reasonable and feasible modifications to project planning (described in the report) bring the right voices and perspectives into the light and enable efficient, consensus-driven carbon reduction.

Intended audience: Business leaders throughout project value chains, including project owners, developers, engineers, designers, materials manufacturers, financial partners, public sector partners, and others.

Content highlights:

  • Conceptual overview of opportunities and obstacles
  • 5 strategic recommendations for building momentum toward decarbonization at scale
  • Case profiles of organizations and technologies that exemplify the recommendations
  • Field guide to emerging technologies

Download the Executive Summary 

For information on joining The Climate Board and gaining access to the full report and our complete library, contact us at www.theclimateboard.com/contact

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.

$12.8 billion of sovereign green bonds sold by EU issuers in the past two weeks

Over US$12.8 billion of sovereign green bonds have been sold by EU issuers in the past two weeks, displaying a promising surge in the already thriving EU green bond marketsAustria’s issuance of its first green bond on Tuesday, representing US$4.3 billion of sovereign debt, was only the latest report of a green bond selling with a “greenium”—in this case, with a spread of 2.5 basis points over their conventional debt.

ESG and business newsfeeds have been flooded with reports on the so-called “greenium,” the higher price (and therefore lower yield) seen on a green debt instrument as compared to an otherwise identical non-green offering.  We’re seeing surging demand for green bonds, confirming that investors are both willing and eager to pay marginal greeniums for sovereign, municipal, and corporate green-labeled debt. (For some of our takeaways on the what rising issuance means for companies, check out Jacqueline Kessler’s recent post on the growth in global green bonds.)

Growing greeniums, increasing volumes of ESG-labeled securities, and swelling demand for such offerings are all encouraging signs. But beyond influencing this year’s capital raise or investment strategy, what do these trends mean? How do green bonds fit into the larger puzzle that is the net-zero economy? We see three scenarios for how green bonds and green finance might evolve over time. It’s too soon to tell if all or none of these paths will become reality, but we at The Climate Board hope to see aspects of each take shape.

Scenario 1: The greenium persists, spurring higher levels of corporate climate action via new financing. As issuers continue to see high demand for green bonds compared to other debt, the supply of green bonds will continue to grow. The current spread between green and non-green offerings is small—usually ranging from just a few to around 11 basis points—but could grow large enough to incentivize more companies to engage in decarbonization projects.

Scenario 2: Climate risk and climate action criteria will have more influence on credit ratings, bringing larger spreads between more and less “green” securities. Rating agencies like Moody’s and Standard & Poor’s are already beginning to factor ESG criteria into ratings. We have yet to see exactly how much this integration will impact overall creditworthiness and ratings, but when less environmentally responsible firms start to see formerly top-rated securities slide from triple-A downward, issuers will be under greater pressure to respond with climate action.

Scenario 3: Climate and ESG factors don’t have to be integrated into investment decision-making—because they are reflected in core business criteria already. In the most dramatic evolution of the global economy toward prioritization of decarbonization and climate action, green bonds, ESG investing, and climate risk disclosure would lose relevance. Investors, consumers, regulators, and companies would not need distinct ESG data or ratings because companies that do not act to protect their supply chains, fortify their businesses against climate risk, and comply with climate regulations will face increased business disruptions, difficulty attracting top talent, and reduced revenue. Business outcomes will inherently reflect ESG performance.

One theme holds true through all of these scenarios— companies that take definitive action now will be rewarded. Through marginal but increasing greeniums, issuers who take advantage of the vast demand for green offerings will be ahead of the decarbonization curve as the market moves toward fuller ESG consideration. For those who want to lead the pack and reap the rewards, the time to act is now.

For those in search of a partner and resource for any part of the journey, The Climate Board is here. We can support your company on your climate action path. Reach out to us for more information.

contact us