Preparing economies and societies for extreme heat

Much of the world kicked off 2023 with a series of meteorological anomalies - longstanding temperature records were broken by large margins in Europe, North America, the Arctic and Africa. Eight countries experienced their warmest January on record. Normally bustling ski resorts have been deserted in Switzerland this winter, because of a lack of snow; pollen warnings have been issued in Prague, due to early blooming plants; and Italian agricultural yields plummeted as a result of drought, fueled by a lack of snowmelt.

In much of the US, the winter has thus far been unrecognisable. Seven northeastern states, including New York, Massachusetts and New Jersey, experienced their warmest Januarys on record. Iconic images of a New York City blanketed in snow have been far from reality this year, as the city hit a new record for the longest stretch without measurable snow. Other cities, including Philadelphia, Baltimore and Washington DC, are approaching record snowless streaks as well. Winter heat waves are hitting the North and South Poles too, with sea ice cover in the Arctic and Antarctic Seas reaching record lows in February.

This unprecedented winter heatwave follows a record-warm 2022 in many parts of Europe, Asia and North America. This crippled critical infrastructure, fueled energy insecurity and threatened human health and wellbeing. As periods of extreme heat become increasingly frequent and severe, policymakers and business leaders must balance short-term adaptation measures with long-term investments in resilience.

Retrofitting critical infrastructure, bolstering early-warning systems and accelerating access to sustainable cooling solutions are among the key long-term resilience imperatives that require increased buy-in from investors, insurers and governments. Although we are still in the midst of winter, governments and businesses must look ahead and prepare for another potentially sweltering summer.

Record-breaking heat waves during the summer of 2022 exposed a stark divide between those who could escape the heat and those who could not. Extreme heat poses a disproportionate, and in some cases fatal, risk to workers in vulnerable sectors, including agriculture, construction, utilities, landscaping and manufacturing. Last summer, extreme temperatures killed delivery drivers in California, street sweepers in Spain, freight handlers in China and construction workers in India.

Employers and governments must make adjustments to protect workers from this growing threat. A Dutch supermarket chain, for example, suspended home deliveries during extreme heat to protect couriers. The GMB Union in the UK, which represents 500,000 workers, instituted a legal maximum temperature of 25° Celsius and made a series of recommendations for retrofitting the workplace during heat waves, including flexible dress codes, water access, extra breaks and access to cooling systems. Employers do not mandate business as usual during a hurricane or a tornado – it is time for the same standard to be applied to extreme heat.

Beyond the impacts on workers’ health, there is an economic incentive for business leaders to take this emerging climate risk seriously. Productivity loss associated with heat exposure costs the global economy $2.1 trillion per year, a number that is likely to increase as the Earth warms. A University of Chicago study estimated that worker productivity dropped an average of 3% for every 1.8° increase in temperature above 80°F. In Southern Asia, Western Africa and parts of Latin America, working hours are projected to decrease by 5% by 2030, with agricultural and construction workers the most significantly affected. Employers, investors and policymakers must take bold action and form new partnerships to build the physical and operational resilience needed to thrive on this rapidly warming planet.

During periods of extreme heat, access to cooling centres or air-conditioned buildings can be the difference between life and death. As the world warms, billions of people worldwide will need air conditioning, making what was once considered a luxury item an essential medical device. Many of the countries most impacted by rising temperatures have some of the lowest rates of home air conditioning access – 12% in India, 10% in Brazil and 5% in Britain. Policymakers cannot solve this problem alone, new partnerships between the public, private, non-profit and philanthropic sectors will be key to providing access to life-saving cooling equipment.

At-home cooling solutions can be complemented by investments in nature-based solutions (NBS) for city-wide heat risk reduction interventions, including targeted tree plantings, cool roofs and implementing other heat-resistant infrastructure. NBS for climate resilience are 50% cheaper than grey alternatives and can deliver 28% greater added value in terms of productivity and positive externalities. NBS are an estimated trillion-dollar opportunity - accelerating buy-in from investors and asset managers will bolster climate resilience and present new opportunities in the years to come.

While adaptation interventions are critical for protecting vulnerable communities in the short-term, they can not take the place of investing in building systemic resilience to the long-tail impacts of extreme heat. Governments and businesses are beginning to access innovative insurance products and risk-transfer arrangements that are catalysing resilient investments that address climate-related risks. Parametric insurance for coral reefs in the Caribbean, reforestation bonds in Northern California and extreme heat microinsurance for vulnerable female workers in India are among the localised financing incentives already attracting sizable pools of private capital. Leveraging these emerging financing mechanisms can help disburse extreme heat risk and mobilise investment in key heat risk-reduction interventions.

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In addition to mobilising investments, strengthening risk models to accurately reflect the risk posed by extreme heat and related climate risks, including drought and wildfire, is a key component of systemic resilience. A recent study by the Bank of England suggests that the data underlying the financial services sector’s risk modelling and predictive analysis tools do not adequately reflect the full spectrum of potential damages due to climate risk, particularly in developing economies with low penetration of property insurance. Updating risk models will have major implications for global investors, especially as asset managers and long-term investors adapt their business models and rebalance their portfolios amid an increasingly volatile climate risk landscape. Incorporating extreme heat risks, including drought and wildfire, into projection data will provide businesses and governments with a more complete view of the physical and financial risks posed by this emerging threat.

As temperatures continue to rise, achieving extreme heat resilience requires a multistakeholder approach, including a generation-defining buy-in from the financial services sector. Leveraging innovative financing and risk-sharing arrangements, as well as protecting workers and scaling access to sustainable cooling solutions, will bring vulnerable economies and societies closer to a heat-resilient future.