Hot In The City: Why Investors Should Care About Soaring Temperatures

Articles From: Schroders
Website: Schroders

By: Tom Walker and Charles Fox

As heatwaves become more frequent, city centre buildings will need to adapt. For investors in global cities, keeping a close eye on weather data will become vital.

As investors in global cities, we have been using planetary-scale environmental geospatial data since 2019.

We have been continuously investigating and mining datasets more commonly found in academic research – including those published by space agencies such as NASA – to tease out the key environmental risks of our investments.

Our data stack covers a wide range of risk indicators. These include the fire weather index for wildfires; historical tropical storm incidence; lightning flash density; landslide risk; flooding, and more – at varying degrees of geographic detail, adding up to many billions of datapoints.  

The number of recent heatwaves in Europe shows just how important being aware of these environmental risks is. Fine-grained weather data is an asset that Schroders has invested in for many years.

We have access to weather data across the planet at every 30-kilometre interval, with variables such as temperature and rainfall gathered each hour. This helps us to visualise the recent European heatwaves for some of the top cities in that region. Our environmental data helps us analyse the historical context of the heat and understand how unusual recent events were.

To put this extreme event in context, we can plot all the July days experienced in all the European Global Cities over the last 10 years on one histogram, and then pick out the recent London heatwave from the distribution. The approximately 36.5°C recorded in London on 18 July 2022 was hotter than 98% of all July days in European Global Cities over the last 10 years, and 19 July, at around 39°C, was hotter than 99%.

The London heatwave 2022: How does it compare vs. the last 10 years of July days in all European global cities?

However, as the figure below illustrates, although a surface temperature of around 40°C is very unusual for London, some European cities regularly experience these kind of peaks. We have picked out Paris, Rome and Madrid for comparison. These cities make up most of the right-hand tail of the previous distribution, to the right of the red dotted lines:

10 years of daily maximum surface temperatures across European capitals

The importance of the apparent temperature

Despite these short-term changes for London and Paris, we are more concerned about the effects of climate change on prevailing temperatures in South Asia. Although the figure most often reported in the media is the air temperature just above the earth’s surface (plotted in the chart above – and labelled as ‘surface temperature’), what people perceive to be the temperature is more important for comfort.

The ‘apparent temperature’ is the temperature equivalent perceived by humans, caused by the combined effects of air temperature, relative humidity and wind speed.

When we look at this measure for European cities compared to South Asian cities, it is clear that Europe still has a long way to go before its cities become as uncomfortable as those in South Asia.

10 years of daily maximum apparent temperatures across European capitals

Indeed, the impact of humidity and wind speed made it feel cooler than the approximately 39 degrees centigrade that was registered as the surface temperature on the 19 July 2022 in London. By contrast, in Delhi it regularly feels a full 10 degrees hotter than the actual temperature.  

10 years of daily maximum apparent temperatures across South Asian cities

As the effects of climate change become more apparent across urban environments from South Asia to central and northern Europe, our infrastructure, offices and social spaces are going to come under increasing pressure to adapt.

Air conditioning may be the short-term knee-jerk response to keep clients happy; offices that lack this will fast become second-rate properties. However, the proliferation of air conditioning will further add to the operating carbon footprint of these spaces.

Over the medium term we would expect to see buildings make use of innovative new architectural practices to reflect more light, minimise heat capture, and improve air circulation and ventilation. Urban planning that is conscious of the need to reduce urban “heat islands” will also need to become the norm, encouraging the provision and integration of green spaces into city centre developments.

Global Cities in Europe include the following counts of cities in each country:

Originally Posted August 18, 2022 – Hot in the city: why investors should care about soaring temperatures

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.

Disclosure: Schroders

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realized. These views and opinions may change.  Schroder Investment Management North America Inc. is a SEC registered adviser and indirect wholly owned subsidiary of Schroders plc providing asset management products and services to clients in the US and Canada.  Interactive Brokers and Schroders are not affiliated entities.  Further information about Schroders can be found at Schroder Investment Management North America Inc. 7 Bryant Park, New York, NY, 10018-3706, (212) 641-3800.

Disclosure: Interactive Brokers

Information posted on IBKR Campus that is provided by third-parties does NOT constitute a recommendation that you should contract for the services of that third party. Third-party participants who contribute to IBKR Campus are independent of Interactive Brokers and Interactive Brokers does not make any representations or warranties concerning the services offered, their past or future performance, or the accuracy of the information provided by the third party. Past performance is no guarantee of future results.

This material is from Schroders and is being posted with its permission. The views expressed in this material are solely those of the author and/or Schroders and Interactive Brokers is not endorsing or recommending any investment or trading discussed in the material. This material is not and should not be construed as an offer to buy or sell any security. It should not be construed as research or investment advice or a recommendation to buy, sell or hold any security or commodity. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.