This summer has been one for the record books, with 63 countries experiencing record-breaking high temperatures.
As a result, 2024 is already on track to become the hottest year ever, even though the year isn’t over yet.
These extreme temperatures have serious consequences for the environment, public health, and, perhaps surprisingly, the economy.
But if the weather is causing so many problems, why aren’t we seeing signs of economic trouble? Joseph (Han) Stice, an assistant professor at George Mason University, has been looking into how climate change is impacting businesses.
In a recent study co-authored with Marcus Kirk from the University of Florida and Derrald Stice from the University of Hong Kong, they found that the economic effects of climate change might be more significant than they appear.
The researchers analyzed data from U.S. companies between 1990 and 2020, comparing their quarterly sales to the temperature data where the companies are based.
They created a measure called “weather beta” to see how much a company’s sales were affected by temperature changes—specifically, whether sales went up or down when temperatures were higher or lower than the “ideal” of 65 degrees Fahrenheit.
They found that, overall, temperature changes didn’t seem to have a big impact on sales across the entire economy.
But when they looked more closely, they discovered that smaller, more localized companies were hit much harder by nonideal temperatures.
For these smaller firms, a shift from cooler to warmer temperatures could lead to sales dropping by as much as 8.8-15.9%. In contrast, larger companies with a wider geographic reach saw smaller declines of 4.3-5.6%.
Interestingly, the researchers noted that actual sales declines were often less severe than predicted, suggesting that companies were able to adapt to the changing weather.
However, these adaptations—whether it’s adjusting business practices or spending more on cooling—represent hidden costs that don’t show up in the sales numbers but still affect the overall economy.
The study also found that financial analysts and investors are often caught off guard by how weather impacts business. Sales forecasts made just before earnings announcements were less accurate when temperatures were abnormal, and stock market returns were influenced by weather-related sales impacts.
Stice believes that for more accurate predictions and better preparedness, we need to focus on the local level. Local governments often have a better understanding of how climate affects their communities and can make decisions that help businesses adapt.
While national and global discussions about climate change are important, it’s the local leaders who will play a crucial role in how communities and companies respond to these challenges.
