Heat stress in Europe: A warming crisis

Understanding the escalating financial impacts of heat stress

As Europe grapples with unprecedented heat waves this summer, the continent is reminded of the pressing need to address the risk of rising temperatures and increasingly severe heat waves. For instance, temperatures climbed above 40 degrees Celsius (104 degrees Fahrenheit) across parts of Europe, creating health concerns and causing landmarks like the Eiffel Tower to close. Barcelona recorded its hottest June in over a century, and Paris hit 40 degrees Celsius (104 degrees Fahrenheit). Additionally, the Wimbledon tennis tournament in London experienced its hottest first day ever, with temperatures soaring to 35 degrees Celsius (95 degrees Fahrenheit). This escalation in heat stress not only affects the health and well-being of populations but also has profound financial implications. Increased temperatures lead to higher energy consumption for cooling, reduced labor productivity, and greater strain on healthcare systems.
 

How does Moody’s model heat stress?

Moody's heat stress model offers a comprehensive view of how heat waves affect different regions globally, generating quantitative granular average annual financial impacts. Our model evaluates how high temperatures impact labor productivity and increase energy costs for air conditioning, ultimately affecting net annual revenue. The model considers factors such as temperature, humidity, urban heat-island effects, and air conditioning prevalence. It assesses the vulnerability of workers in various environments and for different types of work and protective measures that vary globally. Additionally, the model accounts for differences in energy costs between economies. Projected changes in temperature and humidity under future scenarios are considered, accounting for the economic development status of different countries, and the dominant industries and sectors, as some businesses are more vulnerable to these impacts than others.
 

How will heat stress impacts affect different countries in Europe in the future?

According to our physical risk models and analysis, the financial impacts of heat stress in European countries are expected to increase significantly between 2020 and 2050 under the Representative Concentration Pathway (RCP) 8.5 scenario, the worst-case warming trajectory outlined by the IPCC. As shown in the maps below, Southern European countries like Greece, Slovenia, Spain and Italy are projected to experience the largest heat stress financial impacts together with some Central European countries such as Germany, Slovakia and Hungary, and Scandinavian countries such as Finland and Norway.

How much of a driver of financial impact might heat stress be in the future?

Moody's physical risk models illustrate that as heat stress intensifies over time, its financial burden on European countries will grow significantly. The financial impact of heat stress is set to become increasingly important in the future, rising as a proportion of the total financial impact faced by European countries due to various physical risk perils, including chronic perils such as heat stress and water stress, and acute perils such as floods, sea-level rise, hurricanes and typhoons, and wildfires. 

The figures above show the breakdown of the total financial impact from all physical risk perils (acute and chronic) for the top six  European countries with the highest GDP, with heat stress impacts highlighted in red. Heat stress financial impacts are expected to rise significantly by 2050 under RCP 8.5 conditions, with Spain, Germany and Italy enduring the largest future projected impacts of the countries shown. These projections underscore the growing economic burden of heat stress across Europe, highlighting the need for proactive measures to mitigate these impacts.

In conclusion, as Europe faces the brunt of heat waves this summer, the urgency to mitigate and adapt to rising heat stress is more evident than ever. Moody's physical risk models provide valuable insights into the future financial impacts, guiding banks, policymakers, investors and businesses in their efforts to build resilience. By understanding and addressing these challenges, Europe can better prepare for a hotter future, ensuring economic stability and safeguarding the health of its citizens.