Transcript
Speaker: This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Speaker: Hi, everybody, and welcome to the ESG Brief, our focus on the environmental, social, and governance reports coming from the team here at HSBC Global Research.
Speaker: I'm Jack Reed, and in a moment, we'll be talking about the increasing attention being paid to heat stress with ESG analyst Lynette Connerle.
Speaker: Our podcast was recorded for publication on the 30th of June, 2022, and all the disclosures and disclaimers associated with this podcast must be viewed on the link attached to the media player.
Speaker: Now, Lynette has been working for HSBC in the Gulf region for about 12 years now, so she knows something about working in a hot environment.
Speaker: Just recently, she has published a global ESG report on the impact of heat on worker health, worker productivity, workplace regulations, and the increasing level of heat stress disclosures required by corporates.
Speaker: She joins us now from Dubai to talk about the report.
Speaker: Lynette, welcome to you.
Speaker: Thank you, Jack.
Speaker: So you must have witnessed some fairly significant climate changes in the Middle East.
Speaker: What have you seen?
Speaker: Yes, definitely.
Speaker: The last couple of years in particular, we've been hitting 50 degrees Celsius.
Speaker: in June, whereas previously we wouldn't really be seeing 50 degrees until more like August.
Speaker: And this year we've had a lot of dust and sandstorms.
Speaker: We've been getting a lot of rain coming in the early parts of the year.
Speaker: We've been having colder Januaries.
Speaker: So the climate has definitely changed in the period of time that I've been here.
Speaker: Now, last year, heat stress came up in a report you published in September about the Gulf states.
Speaker: What was the context there?
Speaker: Yes, so we did a report, GCC Labour, Big Events, Big Reforms, which looked at the labour law reforms that have been taking place across the Gulf states.
Speaker: And one of the things that has been changing, for example, in Qatar last year, the summer work ban period has been extended.
Speaker: So it now lasts for more hours per day and for more months of the year.
Speaker: And on top of that, Qatar's introduced a temperature-based work ban, meaning, you know, work must stop if the temperature hits a certain level.
Speaker: And that's applicable at any time of day and at any time of year.
Speaker: So, you know, quite a significant change in response to the heat.
Speaker: And when did we start looking at heat stress at a global level?
Speaker: Yes, exactly.
Speaker: So in the
Speaker: 2022 version of the Fragile Planet report that we publish annually looking at the resilience of countries to climate risk, we introduced the effect of heat stress on labour productivity at the country level as a forward-looking indicator.
Speaker: So in this report that we've currently done, we look at it from the point of view of the effect on labour productivity, but also on human health.
Speaker: And what are the effects you're flagging up in this report?
Speaker: So there's two real impacts of workplace heat stress, which is what we focus on in the report.
Speaker: There's the effect on labour productivity, which goes down in part because workers naturally just work more slowly in the heat, but also where there are regulations in place to protect people.
Speaker: workers from heat stress in the workplace, they will be required to take X minute break per hour.
Speaker: And these rest breaks become longer the higher the temperatures go.
Speaker: So both of those things affect labour productivity, which is obviously a cost issue for companies, particularly those involved in agriculture, food production, construction, where there's a lot of outdoor work, so a lot of people working in direct sunlight in the heat.
Speaker: You also focus on the long-term health issues around that protracted exposure to heat.
Speaker: What are the consequences here?
Speaker: You know, one of the worst outcomes would be death, but another particularly nasty outcome is chronic kidney disease, which often also results in death, but not immediately over a period of years.
Speaker: But once you have it, once it's chronic and you are on dialysis, for example, then essentially the worker is debilitated, can no longer work, can no longer provide for their family.
Speaker: And it's well documented among sugar cane workers in Central America.
Speaker: And it actually affects the young because these are the young men who are out there in the fields cutting the sugar cane.
Speaker: So there's a very high incidence of it among younger males.
Speaker: Tell us about the economic costs.
Speaker: How significant a problem is this?
Speaker: Yes, so it's currently estimated that losses associated with heat exposure running around 300 billion US dollars a year.
Speaker: It's expensive.
Speaker: If you look at the percentage of working hours lost due to heat stress and the effect of it on labour productivity, obviously hot areas such as southern Asia, western Africa are the most impacted.
Speaker: But if you look at how the losses are going to change over time,
Speaker: So going from 1995 out to 2030, places like North America are expected to double.
Speaker: So even developed countries are going to see quite a significant impact over the next few years.
Speaker: All right, let's turn to regulation.
Speaker: What are we seeing that's related to heat stress?
Speaker: I think the US is a good case in point.
Speaker: Following the record temperatures last summer, a federal level heat regulation rule is now finally under development after decades really of pressure for there to be one.
Speaker: And in the meantime, some of the states have either introduced their own rules or tightened up the requirements of the rules that are already in place.
Speaker: I've already mentioned the Qatar's extension of its summer
Speaker: work ban periods and the introduction of its temperature based work ban.
Speaker: Costa Rica has introduced heat stress regulation to combat the very high levels of chronic kidney disease in that country, including amongst sugarcane workers.
Speaker: So we think this is just the beginning and that there will be more and more heat regulation being put in place globally.
Speaker: And as a consequence of the increase in regulation, I would imagine that corporates and investors are also adapting to a whole new set of disclosures.
Speaker: Exactly.
Speaker: So in the EU in particular, with the proposed sustainability standards that should probably come into force this year, companies will need to assess whether heat stress is a material risk, both in their own operations, but also in their supply chains, which probably for EU companies is going to be predominantly where heat stress risk lies.
Speaker: And if it is assessed to be a material risk, they need to explain all
Speaker: what they're doing about it, not just about the current risk, but their plans for future risk.
Speaker: And, you know, now that we have reasonable data to understand how temperatures are going to change in different parts of the world, it should be relatively easy for companies to figure out, you know, OK, we don't have a problem today, but in three, four, five, six years time, we could have a heat stress problem, you know, in this part of the world where our factories are located or our suppliers' factories are located.
Speaker: So supply chains, no matter where they are, come under increasing scrutiny from a heat stress perspective?
Speaker: Yes, absolutely.
Speaker: And there will be certain sectors that are more affected than others.
Speaker: You've mentioned agriculture and construction are going to be very much affected because of the outdoor work.
Speaker: But there are other sectors such as textiles.
Speaker: So a lot of the factories and workshops that are located in India and China, for example, don't have AC.
Speaker: And of course, textiles feed into the whole industry.
Speaker: fashion supply chain in the same way that agriculture feeds into the whole food production and food retailing supply chain.
Speaker: And things like food delivery riders, they're also exposed to heat risk because they're driving around all day or riding around all day out in the heat in places like the Middle East, for example.
Speaker: And often they may not be stopping to drink enough water or to take bathroom breaks because they're being paid per delivery.
Speaker: So they don't want to waste time on that kind of thing.
Speaker: And in many cases, it's a huge amount of water that ought to be consumed.
Speaker: Yes, it's, you know, anything up to a litre an hour.
Speaker: And therefore, you know, you need to have bathroom breaks alongside that.
Speaker: And so both need to be encouraged.
Speaker: What happens in some industries is that the workers, although the water is there, because they're being paid by the piece, they are just don't feel comfortable about drinking and then taking the bathroom break.
Speaker: or they're not financially incentivized to do so.
Speaker: So, you know, that's where employers have to become responsible and make their workers drink as much as they should drink and take the cool down rest breaks and etc.
Speaker: So what actions should investors be taking here when they are engaging with companies?
Speaker: Because, for example, under the proposed EU disclosures, it's up to the company to decide whether the heat stress is a material risk.
Speaker: And that essentially comes down to the judgment of the company itself.
Speaker: But I think there could be some really interesting conversations between investors and companies as to how that assessment was made.
Speaker: You know, what sort of data did they get?
Speaker: they take into account, particularly when it comes to predicting future risks.
Speaker: So I think those conversations between investors and companies could be very interesting around this particular topic.
Speaker: It's a substantial report, Lynette.
Speaker: Thank you very much for your time.
Speaker: Thank you, Jeff.
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Speaker: That's all the time we have for this edition of the ESG Brief.
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