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Do businesses need to be worried about drought and rising temperatures?

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Our answer:

Yes, and they already are worried. We’re breaking heat and drought records worldwide, and the next few years will be the hottest of all time. Many corporate leaders recognize the escalating urgency of addressing water and drought risks and have been taking action to reduce their waste and pollution.

Is it getting hotter in here?

The planet is warming more quickly than scientists predicted, and shifts in climate patterns could exacerbate the situation. Last month was the warmest March on record, completing a 10-month streak where each month successively broke global temperature records compared to the same months in previous years. The period from April 2023 to March 2024 has been the hottest 12-month span on record, with average temperatures 1.58 degrees Celsius above preindustrial levels. Sea temperatures broke records, and Antarctica’s sea ice melted to new lows. While cyclical patterns like El Nino deserve some of the blame for the early threshold crossing, the severity of warming has scientists highly concerned.

Rising temperatures increase the potential frequency and intensity of extreme weather phenomena—severe droughts, floods, storms, wildfires, and melting ice caps—leading to increased mortality, disease, and species extinction. Floods and droughts alone account for more than 20% of the economic losses caused by extreme weather events in the US each year.

The Amazon rainforest is undergoing severe drought, exacerbated by unusual warming in the northern Atlantic and deforestation. These conditions reduce the rainforest's resilience, making it drier and prone to fires. The drought lowers river levels and affects local populations, forcing reliance on contaminated water and causing health issues.

The most destructive wildfires in US history have occurred in recent years, and the next five years are anticipated to be even worse. Increased evaporation dries out the soil and vegetation and creates prime fire conditions. In 2023, Canada and Maui experienced significant wildfires due to early snowmelt and arid conditions.

Heatwaves also pose severe health risks, including heat-related illnesses and deaths. This summer, over 243 million children in East Asia and the Pacific face risks from heat-related illnesses due to record temperatures and high humidity that impede natural cooling. In the US, more than 12% of households in the lowest income quartile have no access to air conditioning.

Scientists also warn that we’re on the verge of five catastrophic temperature tipping points that, if crossed, could create domino effects disrupting the global climate. These unprecedented events aren’t fully understood but form the basis of the target to limit warming to 1.5°C over preindustrial levels outlined in the Paris Agreement. While we already passed this threshold this past year, there’s hope that the effect of El Nino makes this a short-term spike. We want to avoid averaging 1.5-2.0 degrees warmer for 5-10 years.

How do rising temperatures affect the economy?

Rising temperatures are already a growing economic problem regardless of the temperature tipping points. Droughts, extreme heat, and wildfires severely strain our domestic and global economies.

The most apparent victim of drought is agriculture. However, it’s not just crops. More frequent and extreme heatwaves in the US have increased livestock deaths, particularly in Kansas, a major beef producer. Livestock shortages have inflated costs for Tyson Foods, and more anticipated heatwaves could further strain the beef industry.

Drought disrupts transportation. Over 90% of all globally traded goods are transported via waterways, but many are drying up. Due to severe drought and low water levels in the Panama Canal, shipping giant Maersk has had to modify its shipping routes for freight from Oceania. Large portions of cargo are now transported across Panama by rail, reconnecting to ships on the opposite coast. This slows supply chains and increases trade costs.

In the summer of 2022, the Rhine River, a vital European transport route, experienced its lowest water levels on record back 500 years due to severe drought. This significantly disrupted shipping, with some vessels operating at only 25% capacity, affecting the transport of over 300 million tonnes of goods. Domestically, falling water levels in the Mississippi and Ohio rivers risk disruptions to critical US shipping routes responsible for 60% of US grain exports. With reduced water levels, barge companies are forced to lighten loads, complicating grain transport and increasing shipping costs.

Water shortages disrupt the entire tech industry. Manufacturing semiconductors, the computer chips that power basically all tech, from cars to smartphones, requires a lot of water to clean and cool the parts. The more sophisticated the chip, the more water is needed for production, making droughts devastating to the production process for the biggest chipmakers like Taiwan Semiconductors.

Data centers are very heat-sensitive and rely on water for cooling. Heatwaves have forced data center shutdowns for companies as big as Google and Oracle. Microsoft has started submerging its data centers in the ocean to keep them cool with less energy. The rapid adoption of artificial intelligence has only accelerated data center and semiconductor demand. Disruptions from heat and drought will pressure smartphone and technology costs for years.

Higher temperatures have also exacerbated wildfires throughout the US, wrecking everything in their path and straining the insurance industry. Major insurers like State Farm and Allstate have even ceased offering new homeowner policies in California, citing escalating costs from catastrophic weather events. This shift leaves homeowners vulnerable, especially as wildfires grow more frequent and severe.

Executives can’t ignore the risks to their people, either. High temperatures have led to severe hospitalizations and deaths across industries, from farm workers in California to UPS delivery truck drivers. Air conditioning in trucks was one of the most critical demands won by UPS drivers in last year’s high-profile labor negotiations.

How are businesses responding to these risks?

Corporate leaders have grown increasingly aware of the impacts of heat and drought on their operations, prompting action to increase water efficiency and curb carbon emissions that accelerate global warming.

Food and beverage companies have ramped up water efficiency and recycling. PepsiCo reached its 2025 targets for reducing water waste two years early by increasing water efficiency and implementing recycling and purification tech at its chip and beverage factories that turn potato-washing water back into drinking water. The snack giant replenishes 45% of its water use, aiming for 100% by 2030. Coca-Cola improved its water efficiency by 10% from 2015 to 2022 and aims for 100% circular water use at 175 locations by 2030.

Food giants have also shifted their supplier farming practices to more sustainable, natural methods that retain more groundwater, increase biodiversity, and capture more carbon emissions. So-called regenerative farming practices like no-till farming, using cover crops, animal grazing, and limited pesticides enrich the natural ecosystem. It can help return more nutrients to the soil, allow it to retain more water, capture more carbon from the air, and increase agricultural production. Walmart and PepsiCo have partnered to invest $120M to promote regenerative agriculture among their suppliers, sharing costs with farmers to shift to more sustainable practices. Unilever launched new strategies like crop rotation in its UK farms for Coleman's mustard and aims to implement similar practices across 1.5M hectares globally by 2030. General Mills committed to advancing regenerative agriculture on 1 million acres by 2030.

Big tech companies are hyper-focused on increasing water efficiency and reducing carbon emissions. With 49 projects under its belt, Microsoft is employing AI and innovative technologies to enhance water management, aiming to be water-positive by 2030. Amazon is undertaking initiatives to replenish 1.5 billion liters of freshwater annually across five countries by investing in agricultural, irrigation, and leak detection projects. This is part of its ambition to become water-positive by 2030, counterbalancing the water used in its data centers.

Broadly, companies are moving to curb their carbon emissions that accelerate global warming. Nearly two-thirds of global public companies have already started reporting their carbon footprint with plans to reduce it by increasing their energy efficiency, switching to renewable energy sources, and reducing waste. Big Tech is leading the way.

What can we do?

While individual actions are essential, the broader responsibility lies with corporate decision-making. Leveraging our voices and financial choices to encourage responsible corporate behavior concerning climate impact is critical. Demanding transparency, commitment, and accountability from businesses regarding water usage, carbon emissions, and worker safety can drive meaningful change.

Keep building,

The Scoop Team

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