High temperatures reduce employee productivity. As researchers at the Helsinki University of Technology and Lawrence Berkeley National Laboratory have shown, peak productivity for mental work is achieved at a temperature of 22°C. As temperatures rise from 25 to 32°C, every one-degree increase results in a 2% drop in performance. In the case of physical labor, the decline in productivity can, in some cases, reach 5% for each additional degree above 26°C. There are more and more hot days; this is a trend that has not only been observed for a long time, but is actually accelerating. A team of climatologists from Polish universities found that between 1951 and 2019, the number of hot days in Poland increased by an average of 3 per decade, and since the 1980s, the rate of increase has risen to 7 days per decade.
This decline in productivity affects companies to varying degrees, depending on the nature of the work their employees perform. If they work mainly in offices, the problem is less severe, because we can mitigate the negative effects with appropriately efficient air-conditioning systems. However, in some industries, such as agriculture or construction, many types of work cannot be protected from high temperatures at all.
The TCFD recommendations introduced reporting on, among other things, physical risks related to climate change. These recommendations have also been incorporated into reporting standards that are legally binding (ESRS, IFRS S2), which has motivated companies to assess, among other things, the extent to which they are exposed to risks associated with heat waves. I have frequently participated in discussions with MATERIALITY clients, during which we considered what financial impacts such events might have on a company (higher labor costs, lower efficiency, delays in contract completion, additional costs of equipping the company’s facilities with appropriate air-conditioning systems, etc.) and what the likelihood of their occurrence might be.
Or perhaps we should no longer treat heat waves as a risk, but rather as a reality—a fact that we simply have to deal with? After all, we have all the data: how often they occur, how long they last, what temperature changes we’re talking about, and what the associated costs are. Perhaps we simply need to factor this into our financial forecasts for the coming years. Of course, heat waves aren’t identical every year, but we know all the parameters of the trend, which we can use in these forecasts.
You might view the above proposal as an intellectual provocation. Is the co-creator of the ESRS standards urging us to treat one of the risks identified in the standards as not a risk? Has he gone a bit too far? 😉 But this is a serious proposal. After all, it’s much easier to talk to a CEO or CFO about costs and efficiency—especially when we’re armed with numbers—than about some abstract climate risks. The only serious risk I see is that once the costs of heat waves are included in the income statement, we’ll simply brush them off as business as usual. Then again, maybe this is the only effective way to ensure that the climate crisis becomes a fundamental factor in the actual decisions made by corporate boards, rather than just lofty and often empty declarations.
P.S. The current heat wave has coincided with the end of the school year and the start of summer vacation. It’s the perfect time to take a short break: expect the next issue of the newsletter in late July. I wish you all a wonderful summer vacation 😊
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