How heat waves impact the economy

Today's newsletter looks at new warnings on the impacts heat waves can have on European economies. You can also read and share this story on Bloomberg.com. For unlimited access to climate and energy news, please subscribe.

Wilting economies

By Alexander Weber and Mark Schroers

The link between heat and key economic indicators such as inflation and gross domestic product is too important to ignore, according to European Central Bank Executive Board member Frank Elderson.

"We have progressed in understanding that accounting for the climate and nature crises is relevant," Elderson said in an interview. "If you think about the exceptionally hot summer of 2022, food-price inflation was up between 0.4 and 0.9 percentage points" and "there was quite a measurable hit on German GDP."

"So these things are relevant," he said.

The comments coincide with another European heat wave in which much of the region has experienced unusually high temperatures fueled by climate change. Scientists have found that a hotter planet has the potential to threaten price stability, in part as crops become more difficult to tend and food prices rise.

Frank Elderson Photographer: Alex Kraus/Bloomberg

Against that backdrop, the ECB is now intensifying its efforts to deal with climate-related economic risks. That includes adjustments unveiled this week showing that it will fully take into account not just the implications of climate change, but also "nature degradation" when setting monetary policy.

The decision represents an "important addition" to the wording used by the central bank, Elderson said on the sidelines of the ECB's annual conference in Sintra, Portugal.

The new focus on nature-related risks will eventually feed into various aspects of the ECB's efforts to ensure price stability and to supervise Europe's systemically important banks.

The approach is in stark contrast to that of the Federal Reserve. While Chair Jerome Powell has in the past acknowledged the threats that climate change poses to the US economy and financial system, he's also repeatedly stressed that the Fed doesn't have a mandate to foster a low-carbon transition.

"You heard me say over and over again that we will not be climate policymakers," Powell said during a press conference in May. "Our role on climate is a very, very narrow one."

Jerome Powell Photographer: Al Drago/Bloomberg

The Fed's efforts to downplay the relevance of climate change in safeguarding financial stability have also encompassed interventions to water down global standards, including those set by the Basel Committee on Banking Supervision, Bloomberg has previously reported.

Even in Germany, Europe's largest economy, there's clear evidence of resistance toward policies promoting climate and human rights considerations. Stiftung Familienunternehmen, a lobby dedicated to defending the interests of family businesses, issued a statement on Friday questioning the constitutionality of incorporating such standards in European regulations.

Elderson said that "whilst there's a backlash out there," the ECB Governing Council "sticks to its guns and actually adds to that to say we now understand on the basis of the work that has been done that we need to think beyond just what climate means for price stability."

The ECB is still studying events such as the summer of 2022 and its impact on inflation and GDP to get a sense of what's ahead, Elderson said.

Read the full story on Bloomberg.com.

— With assistance from Nicholas Comfort, Joe Wertz, and Rachel Morison

Early estimates

$2.4 trillion

This is how much heat stress on workers could cost the global economy in annual gross domestic product by 2030.

Blank space

"We've got hundreds of years of records of floods and hurricanes and acute peril. But for heat, we're just starting to see it [in the data]."

Dave Bigelow

A climate risk advisor for Aon

Climate risk models, which are widely used in the insurance industry, can estimate the likelihood that fires or floods will affect a specific place in the US. So far, the models don't typically make detailed projections for extreme heat.

Feeling the heat

By Miquela Thornton

Climate change is already having an impact on companies around the world.

Over half of the firms surveyed in a recent Morgan Stanley report experienced the climate's impact on operations within the past year, including increased costs, worker disruption and revenue losses. The growing financial impacts are a key reason some companies are continuing to pursue emissions cuts and adapt to a warming world even amidst political turbulence, the survey found.

Extreme heat and storms were the leading disruptions, followed by wildfires and smoke, water shortage, and flooding or rising sea levels, according to the new report. The US alone has spent nearly $1 trillion on disaster recovery and other climate-related needs over the past year, a recent Bloomberg Intelligence analysis found. Data collected by the US Census Bureau shows how these impacts can play out locally: For example, nearly two-thirds of businesses in the Tampa metro area surveyed reported losses due to extreme weather following last year's hurricane season when Helene and Milton made landfall on Florida's west coast.

Read the full story on Bloomberg.com.

More from Green

JPMorgan Chase & Co. is developing a new service to tokenize carbon credits and is partnering with a trio of carbon companies for an initial trial.

Kinexys, the US bank's blockchain unit, is teaming up with S&P Global Commodity Insights, EcoRegistry and the International Carbon Registry to test a new application that will tokenize credits listed in registry systems overseen by the three companies, according to a statement on Wednesday. The companies will explore whether blockchain technology can be applied to regular activities such as tracking ownership of credits from issuance to retirement.

Tokenization has become a growing trend on Wall Street as bankers and money managers from BlackRock Inc. to Deutsche Bank AG seek more efficient ways to process and settle trades. Digital tokens that represent ownership of real-world assets, including stocks and Treasury bills, or, in this case, carbon credits, can be easily identified and traded.

Photographer: Guillem Sartorio/Bloomberg

Japan's $1.7 trillion Government Pension Investment Fund, has added to its ESG investments, rejecting the shift away from green strategies by many global asset managers. GPIF held about ¥18.2 trillion ($126 billion) of assets tracking ESG indexes at the end of March — up from ¥17.8 trillion a year earlier.

Turkey approved plans to launch a carbon market to help cut its greenhouse gas emissions to net zero by 2053. Businesses will be required to obtain permits to emit carbon dioxide within three years, according to a climate law passed by parliament.

The Chinese government vowed to increase oversight of the nation's beleaguered solar industry, which has suffered billions of dollars in losses as an over-abundance of manufacturing capacity slashes prices.

Worth a listen

When the UK handed the Labour party a parliamentary majority last July, it promised to build a new state owned energy company called Great British Energy. It's almost exactly one year since its creation, and GB Energy now has a budget of £5.8 billion to get the organization off the ground. It sounds like a lot of money, but is it? And what exactly will the organization do with all of it? On Zero this week, Akshat Rathi spoke to Dan McGrail, interim CEO of GB Energy, to find out the answers. Listen now, and subscribe on Apple, Spotify, or YouTube to get new episodes of Zero every Thursday.