The compound effect: Heat, water, and the new risk landscape

This white paper examines the convergence of heat and water stress as a growing compound risk affecting multiple sectors and geographies. It draws on climate modelling (including Moody’s Climate on Demand models), industry datasets such as ORBIS, self-reported CDP financial exposures, and case studies like Texas. The analysis covers acute events (heatwaves and droughts) and chronic stressors, with a focus on Europe’s record 2026 heatwaves and industrial water use in the US. Sectoral exposures are detailed for agriculture, industry, and municipal users, with geographic overlaps mapped for regions like southern Europe, India, and the US Southwest.

Key recommendations from the report include: 

• Embedding forward-looking projections into insurance products, especially parametric policies for chronic risks
• Integrating heat and water stress into valuation and capital allocation by investors and banks
• Investing in water efficiency, recycling, and alternative cooling
• Proactive modelling to protect businesses, portfolios, and communities in an increasingly heat-stressed, water-constrained world