Why Extreme Heat Policy Matters for Businesses
Why Extreme Heat Policy Matters for Businesses
Senior Advisor, Policy, BMO Climate Institute
Angela leads climate policy and clean energy workstreams within BMO’s Climate Institute. Prior to joining BMO, Angela led renewables and climate policy effort…
Angela leads climate policy and clean energy workstreams within BMO’s Climate Institute. Prior to joining BMO, Angela led renewables and climate policy effort…
VIEW FULL PROFILE-
Minute Read
-
Listen
Stop
-
Text Bigger | Text Smaller
Extreme heat is becoming a new normal. After 2023 became the warmest year on record, there is a significant chance that 2024 reaches a new high temperature.1
As dangerous heat waves become more frequent, policymakers in the U.S. and Canada are grappling with how to respond with policies that address the wide-ranging and often unquantified impacts of extreme heat. However, the breadth and nature of the extreme heat risk make it unlikely that policy solutions will be able to mitigate all associated impacts.
It is critical that business leaders understand not only the impact of extreme heat, but also the gaps that cannot be addressed by government solutions. BMO's Climate Institute conducted an analysis of U.S. and Canadian federal policies addressing extreme heat, the gaps that businesses may need to fill in responding to this risk, and actions that businesses should consider.
Major impacts of extreme heat
Extreme heat is an often overlooked but significant weather risk. Not only are the number of extreme heat events increasing globally, but this risk is now affecting geographies previously unexposed to this peril. Extreme heat is defined differently across geographies; we define it as an event in which a location experiences temperatures significantly hotter than typically experienced by that area.
BMO is taking steps to assess extreme heat risks in some of the communities in which we operate. Recent analysis from BMO Climate Institute Fellows used climate data and geospatial mapping to determine where in BMO’s U.S. footprint flooding and extreme heat will hit hardest in coming years. We then overlaid household income data, indicating areas with higher flooding and heat risks, because they have fewer financial resources to adapt to the changing climate.
The impacts of extreme heat across North America include:
Mortality and health impacts. Extreme heat is a leading cause of weather-related deaths in both the U.S. and Canada, with death and injuries often taking place disproportionately in disadvantaged communities.2
Heightened risk of related perils. Extreme heat can increase the likelihood or intensify the occurrence of related perils, such as drought, wildfire and crop damage – potentially leading to even greater risk, cost, and disruption of livelihoods in certain geographies.
Infrastructure damage. Extreme heat can damage critical infrastructure, leading to disruption of service and increased costs to governments and taxpayers. Examples of this damage include degradation of concrete, warping train tracks and pressure on transportation systems, damage to power transformers, and even increased difficulty operating commercial aircraft.
Impact on agriculture. A recent research collaboration between BMO Climate Institute and students at the University of California, Berkeley modeled the consequences of extreme heat, drought, and wildfire for U.S. agriculture out to 2050. The analysis found that the effect of extreme heat will be primarily negative over time and across geographies but is projected to drive increased yields in some places.
Strain on the grid. Similarly, extreme heat can cause the electricity grid to experience decreased efficiency due to physical drooping of power lines combined with difficulty shedding loads due to transformer damage. When combined with increased energy demand to meet cooling needs, extreme heat events can create significant strain on the grid.
Economic impact. The Atlantic Council has estimated that extreme heat costs the U.S. economy US$100 billion annually – a number that is estimated to increase to US$500 billion by 2050 without appropriate mitigation and adaptation.3 It has also been estimated that extreme heat could reduce annual labor productivity in Canada by CA$14.8 billion by 2050 in a high-emissions scenario, with the manufacturing and construction industries most at risk.4
The policy environment
Who bears the responsibility for preparing for and responding to extreme heat events? Few, if any, U.S. federal assistance programs were designed specifically with extreme heat in mind. This contrasts with flood risks, for example, which are covered by the National Flood Insurance Program.
State and local planning and response for extreme heat varies widely, as do adjacent policies around heat safety standards and energy disconnection. Some jurisdictions, such as Miami-Dade County, have even appointed a chief heat officer dedicated to extreme heat policy.
Similarly, extreme heat is primarily addressed at the provincial level in Canada, creating a wide variance in how the risk is addressed across the country.
Nonetheless, the U.S. and Canadian federal governments have taken initial steps toward addressing extreme heat waves in a more proactive manner. U.S. federal agencies have proposed or enacted actions requiring more stringent planning for extreme heat, increased heat-related workplace inspections, and disclosure of business exposure to climate risks. In August of 2024, the White House published its first ever National Heat Strategy for 2024-2030, emphasizing that response is typically a collaborative effort across levels of government, the private sector, and community groups. In Canada, federal efforts have included research to link extreme heat events to human activity and funding to build climate-resilient health systems and protect the people of Canada from extreme heat-related health impacts. Both countries also have allocated funding that can be leveraged for adaptation and resilience to extreme heat.
The business environment
Despite the steps being taken by North American governments to address extreme heat, policy cannot manage all impacts.
Business leaders should consider their organizations’ risk exposure and consider taking steps to adapt their operations:
Assess Risk
Businesses – even those not required by regulation to assess climate risk – should conduct a risk assessment to better understand where their operations, assets, and workforce are most vulnerable to extreme heat.
This analysis should consider historical climate data and may also include future projections. It is prudent to also consider third-parties, including supply chain partners and their potential vulnerabilities to extreme heat. Part of the analysis may include a review of end-to-end process resiliency risk and geographic concentration risk. Businesses may also consider whether extreme heat will create a shift in demand for their product or service.
Public resources such as FEMA’s National Risk Index can be leveraged to inform this assessment.
Implement Continuity Planning
Once a business has established an understanding of the risk to their assets and operations, they can consider creating a business continuity plan. This plan should include how to protect employees, safeguard assets, and maintain or restore operations. This planning should consider the possibility of disruption to utilities upon which the business depends for operation.
Businesses should consider leveraging continuity resources developed by FEMA and the Department of Homeland Security to facilitate this process.
Review Insurance
Business interruption insurance often excludes extreme heat events. Businesses should closely review relevant insurance policies to ensure a clear understanding of their exposure to costs created by these events. In some cases, property insurance may cover the cost of physical damage caused by heat events.
Consider Adaptation
Some adaptation efforts may be beneficial to businesses looking to create more resilient operations in the long term. One example of this would be occupying retrofitted buildings or retrofitting owned assets. Retrofitted buildings can stay cooler under extreme heat conditions and have the potential for lower energy demand. As adaptation projects like retrofits become more affordable, businesses should consider whether these types of projects are appropriate for them.
Employers in industries like construction should also consider adaptation efforts to reduce productivity impacts, such as shifting work schedules away from the hottest part of the day.
Conclusion
Extreme heat has been described as a “silent killer” because of how difficult it is to identify, quantify and address. While the U.S. and Canadian governments are taking steps toward addressing these impacts, policy cannot solve all associated challenges. Businesses seeking to create resilience to this risk should continue to assess and consider how they are protecting their people, operations, and assets from current and future impacts of extreme heat events.
1 Earth just had its warmest July on record. (2024, August 12). National Oceanic and Atmospheric Administration.
2 Ndugga, N., & Artiga, S. (2023, August 24). Continued rises in extreme heat and implications for health disparities | KFF. KFF.
3 Messieh, N. (2023, October 2). Heat is killing us—and the economy too. Atlantic Council.
4 Institut climatique du Canada. (2024, May 23). Heat waves in Canada - Extreme heat in Canada. Canadian Climate Institute.
