The subject of excessive heat effects on human health, worker productivity, agriculture, and infrastructure are gaining traction in media and academic analyses. At the recent Brookings Institution, 12th Municipal Finance Conference an interesting paper was presented about heat stress and the municipal market – “Is Physical Climate Risk Priced? Evidence from Regional Variation in Exposure to Heat Stress.” The Brookings presenters found pricing relationships between heat and financial securities. Authors found “consistent evidence across asset classes that local exposure to heat stress is associated with higher yield spreads for bonds, especially for lower-quality, and longer-maturity bonds.” You can find the paper here, as well as the rest of the conference agenda.
Elsewhere, today’s Financial Times sported this article: “Jet stream pattern and ‘heat domes’ fuel soaring temperatures around globe.” There is a paywall for those readers that don’t subscribe, so I will paraphrase a few key takeaways. Combined factors of heatwaves and flooding are occurring in the US, Europe, and Asia, forming a pattern of five “U-shaped” bands of weather, and trapping air into “heat domes” around the world. Geographic areas in between the heat domes may experience flash flooding and sudden heavy rainfall. We discussed the “El Nino” weather pattern in a recent blog post and the impact of heat one year ago, here. It will likely exert its influence on weather over the coming months and into next year.
Also, in the morning inbox was this article from Axios Markets: “1 Big thing: Extreme heat is becoming an urgent labor issue”. Authors cite Bureau of Labor Statistics,’ that there were 436 deaths from 2011-2021 due to environmental heat exposure, which we believe is a likely understatement. The figures for heat related deaths are all over the place, as recordkeeping on “cause of death” can vary greatly. (See articles here, here and here.) For example, COVID isolation left many in sweltering apartments. (Was death due to COVID or heat stroke?) Also, during heatwaves, many cooling stations, movie houses, grocery stores and shopping centers were closed to prevent COVID transmission.
Lack of protective rules governing exposure to excessive heat have led to a handful of strikes and some workplace changes (such as long-overdue installation of air-conditioning in UPS delivery trucks). Axios authors cite 38.7 million workers in industries “that put them at risk from climate dangers, including heat and other extreme weather” (based on analysis by Anastasia Christman, senior policy analyst at the National Employment Law Project). Additionally, such exposure disproportionately affects Black and Latino workers according to the article.
Eric Holthaus, founder of Currently, a relatively new weather newsletter, commented today: “The North Atlantic heat wave reaches uncharted territory”. Scroll down to the chart, “North Atlantic Sea surface temperature anomaly, through July 19, 2023” to visualize the unusual phenomenon, literally off the charts (compared with average temperatures from 1982-2011). Holthaus mentions that forecasters have boosted their estimates for the Atlantic Hurricane season in 2023 which we also noted in our last post here.
Food chains too, have been disrupted across the globe. While lower priority than heat stroke, but still one of many climate related issues affecting business (and consumers), the production of Dijon mustard has been harmed with a 28% drop in Canadian production of the brown mustard seed and loss of crops in Spain when seeds dried up in the heat last summer. This latest FT discussion notes that retailer Aldi expects falling crop yields due to heat. Another side effect is population migration, “particularly in the world’s most food-insecure regions.”
We note that the Society of Actuaries revised their mortality tables due to the opioid epidemic in the US. Certainly, the COVID pandemic also affected mortality, especially among older populations. Will excess deaths from heat be the next pattern change in mortality? Such trends, to the extent they are statistically significant and depart from historical data, form a cornerstone for estimating liability in retirement plans, both public and private.
Whatever you believe is the cause, one cannot deny that extreme climate events are increasingly common, and having cost impacts in many sectors. Property and casualty companies are aware of these risks and have withdrawn homeowners’ insurance in numerous markets. (See one of several articles here.) We worry that FEMA will become stricter with flood insurance, particularly with repeat claimants. As the cost of more frequent disasters has exceeded appropriations and required funds from Treasury, the risk of such program reductions grows, particularly in light of high federal deficits. Forewarned is forearmed as the saying goes.
