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Understanding the Heat Wave Impacts of the Summer
What does a summer of record-high temperatures and unprecedented natural disasters reveal for corporations about climate change?
In this in-depth exploration, we dive into the events, outcomes, and lessons from the summer.
Around the United States and on a global scale, dangerous floods, heat, and storms are happening more frequently, fueled in part by record-high temperatures associated with climate change. Over the past summer, we saw smoke from a record Canadian wildfire season blanket major cities around the country, deadly heat waves in Texas, an unrelenting heat dome over Phoenix, catastrophic floods in the Hudson Valley and Vermont, and ocean temperatures hitting 101 degrees Fahrenheit off the coast of Miami. A decade ago, any one of these events would have been seen as an anomaly. This summer we have seen them happen simultaneously or in quick succession of one another as climate change fuels extreme weather.
These events should be illustrating the long-term risks faced by investors, companies, and their assets, and yet even as storms, fires, and floods become increasingly frequent, climate change still lives on the periphery for most corporations.
We are crushing temperature records
Severe heat waves on multiple continents pushed the first several weeks of July to become the hottest three-week period on record, the World Meteorological Organization (WMO) said July 27. During two of those weeks, the global average temperature temporarily passed 1.5 degrees C above preindustrial levels, the temperature increase limit that is one of the central goals of the Paris Agreement on climate change. This follows the hottest overall June on record since at least 1940, spurred in part by unprecedented sea surface temperatures and record-low Antarctic sea ice. In the US city of Phoenix, Ariz., the temperature exceeded 110 degrees F (43.3 degrees C) for 31 days in a row, while off the coast of Florida, surface ocean temperatures broke 100 degrees F (37.8 degrees C), the equivalent of hot tub temperatures contributing to widespread coral bleaching at shallow reefs in Florida.
The recent heat waves—attributable to global warming caused by greenhouse gas emissions—have been exacerbated by the weather pattern known as El Niño in the tropical Pacific Ocean. The impact of El Nino is only set to worsen, unleashing additional heat into the atmosphere and fueling more extreme weather as the weather pattern intensifies at the tail end of this year.
Although daily temperature milestones are largely symbolic, they point to alarming long-term trends, showing increasing global average temperatures in tandem with growing amounts of greenhouse gases in the atmosphere. The sheer number and scale of climate-related disasters this summer is the clearest warning sign of climate change realities that we’ve seen yet and should be treated as such. Rapid and viral news cycles may steer us towards believing these events are normal, desensitizing us to their impact, and while it is true that disasters have always occurred at the scale we see them today, the bottom line that everyone needs to understand is that the frequency of these events is where we see cause for major concern and a marked change from previous decades.
We are not getting the same breaks between major events that we used to. Weather disasters that cost more than $1 billion in damage are on the upswing in the United States, according to a Climate Central analysis of National Oceanic and Atmospheric Administration data. In 1980, the average time between billion-dollar disasters was 82 days. From 2018-22, the average time between these most extreme events, even controlled for inflation, was just 18 days.
This is what the early stages of climate change feel like, and it should be more than enough for us to start understanding that it is entirely intolerable.
Economic Implications and Financial Risk
The severe economic and financial consequences of climate change are clear. Firms cannot just assume that rapid technological developments will solve the problem, or that the macroeconomic effects of climate change are too uncertain and complex to deal with in the short term when inflation and public debt appear to be a higher priority. The fact is, the effects are certain now. Infrastructure damages, coupled with skyrocketing insurance costs, paint a grim picture.
Not only do these extreme temperatures first and foremost cause death and severe health concerns for millions of people in grossly affected areas, but they are also creating more obvious challenges for corporate workforces, infrastructure, and supply chains. Crops are taking hits, and blackouts are becoming more common as the grid is strained, hitting its peak more often to accommodate greater air conditioning usage and refrigeration needs.
More than 90% of the world’s largest companies will have at least one asset financially exposed to climate risks such as water stress, wildfires, or floods by the 2050s, according to research by S&P Global. Assets can include factories, warehouses, and data centers.
- Infrastructure Damages: The heatwaves that shock electrical grids, coupled with the physical damages from storms, flooding, and wildfires, can lead to colossal loss of assets. Prime real estate and agricultural land in coastal areas will be abandoned in the face of repeated flooding. Soaring temperatures can disrupt data centers by reducing water availability and making it difficult to keep servers cool.
- Insurance: With the increased frequency of extreme events, insurance claims will surge. We can expect much more detailed and pessimistic independent assessments of risks to real estate in coastal metro areas like Miami going forward. Some insurers already reconsider their positions in high-risk regions, either hiking premiums or pulling out entirely. For instance, after extreme wildfires, two prominent insurers recently withdrew from the California residential market.
- Reduced Product Yield and Interrupted Services: The industries most affected by rising temperatures range from construction companies, which rely on manual labor, to agriculture, where yields often fall as temperatures rise, and transportation, which can be affected by heat-impacted roads, low water levels in rivers and buckling train tracks.
- Stranded Assets from Market Pushback: Carbon-dependent industries may face sudden closure as public opinion and government regulation shifts, while other sectors will suffer potentially devastating supply chain breakdowns. As the recent financial shocks post Russia’s invasion of Ukraine highlighted, interconnected markets can collapse in a domino effect.
Some good news is that we know from a recent study that every tenth of a degree in temperature rise that we prevent keeps 140 million people in habitable zones on this planet. With collective action, we can manage to contain the worst impacts of the climate crisis- not to mention the fact that the boom in renewable energy presents a hopeful look into what the future of infrastructure might hold. The obviousness of climate impacts should drive economics in the direction of rewarding climate-resilient and environmentally friendly firms and punishing those that exacerbate the problem.
When uncertainty is reduced financial markets are able to act more decisively to embed developments several years ahead in today’s asset prices. If asset managers continue to follow trends in embedding climate risk into investment decision-making and do so with greater conviction following the clear signs from this summer, corporations would be wise to seriously consider their potential liabilities from climate-related damages and have plans in place to reduce or adapt to those risks in response.
Energy Sector in the Limelight:
Even if climate risk modeling and scenario planning feels too long-term and uncertain for corporations, the immense pressure put on our energy infrastructure from extreme heat should raise the alarm for firms in the short term. With heightened demands for cooling each summer, energy consumption patterns may witness drastic changes, straining grids and leading to power outages in many areas. These challenges are not to be ignored and businesses across all industries can alleviate internal costs and contribute to positive carbon reductions by looking into:
- Boosting Renewable Energy Integration: The need for sustainable solutions has never been clearer. Firms should look to increase the share of renewables in their onsite or offsite energy mixes for a more resilient system.
- Energy Efficiency Measures: Promoting efficient appliances and retrofitting to reduce the cooling demand.
- Green Architecture Solutions: Exploring geothermal, green roofs, and passive cooling designs to combat heat waves sustainably.
- Using AI and data analytics to optimize energy usage: Utilizing data to forecast energy demand spikes and manage resources accordingly.
- Real-time Monitoring: The importance of monitoring energy usage in real-time to detect and mitigate potential issues early and track patterns in usage.
- Scenario Planning: Using data-driven insights for better infrastructure planning, ensuring resilience against extreme weather events.
- Grid Stability and Energy Demand: Energy grids must find ways of coping with higher energy demands going forward. The necessity of adopting smart grid technologies, infrastructure upgrades, and demand response programs is clearer than ever to ensure an uninterrupted power supply and resilience against extreme weather events. Corporations can opt into demand response programs that encourage end-users to reduce or shift their energy usage during peak demand periods.
How WatchWire Can Assist Your Company
Robust data collection, predictive analytics, and real-time monitoring are quintessential in devising proactive strategies against climate change. Firms need much better climate scenarios, climate data, climate risk management, and integration of climate insights into their operations. Organizations should establish robust data collection processes to gather comprehensive information on assets, locations, energy use, sustainability KPIs, and vulnerabilities within the organization.
WatchWire is an integrated energy and sustainability management platform that streamlines, automates, and standardizes your sustainability reporting process. WatchWire collects, audits, analyzes, and stores all your energy, water, waste, and emissions data in one place, providing a single source of truth for your organization. With multiple integrations to LEED Arc, GRESB, ENERGY STAR Portfolio Manager, TCFD, and more, standardizing your sustainability reporting process is possible. WatchWire also provides real-time data monitoring, so you can see how well your sustainability measures are working and provide the most recent energy and emissions data to your investors.
To discover more about WatchWire and its capabilities, you can visit our website, blog, or resource library, request a demo, or follow us on LinkedIn, Instagram, or Twitter to keep up-to-date on the latest energy and sustainability insights, news, and resources.
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