The cost of damage generated by natural hazards is increasing by the decade. In 1975, estimates of yearly damage caused by natural hazards lay at around US$10 billion. In 2011, this figure had increased to around US$400 billion. Given these figures it seems intuitive that increasing disaster risk should represent a growing problem for the economic and business community. Exploring this relationship between businesses and disasters was the focus of the new Global Assessment Report (GAR) on Disaster Risk Reduction ‘From shared risk to shared value: The business case for disaster risk reduction’, showcased at the Global Platform for Disaster Risk Reduction last week.
The impacts of disasters on businesses are both direct and indirect. Direct impacts can be inflicted through damage done to factories, offices and other facilities. Indirectly, businesses can feel the effects of disasters through the damage to infrastructure and systems those businesses depend upon, for example, through damage done to supporting energy and transport networks. There are also wider impacts: negative effects on business image and reputation, loss of market share and other macroeconomic effects. In today’s interconnected global economy, a business can be affected by disasters even if it is not itself located in a hazard prone area. In the past few decades supply chains and markets have become increasingly globalised and the disruption of one link in the chain can have regional and global impacts that propagate through the network.
Although many businesses are concerned about a range of corporate risks, few consider the risk posed by natural hazards. Even in high-risk regions, competitiveness indices and business forecasts rarely mention disaster risk. When companies are investing they often do not consider how hazard prone an area is or whether the area will be able to recover quickly following a disaster. On the other side, cities and countries, competing for investment, have no incentive to tell investors about risks from natural hazards. These tendencies lead to a trend of risk-blind investment. Major institutional investors, such as pension funds, often do not think about such risks in a structured way.
There are some signs of positive change. Investments in disaster risk management are beginning to be viewed as an opportunity to strengthen resilience and competitiveness, rather than as a cost. Some institutional investors are starting to explore regulatory and voluntary actions to make risks more visible. There are an increasing number of initiatives to model disaster risk and ensure that accurate risk data is available for companies to incorporate into their investment decisions. In addition, local governments and businesses are forming alliances to more effectively manage disaster risk. A growing number of countries are reforming legislation, policy and institutional frameworks to address disaster risk. But gaps still remain between policy and implementation. There is still some way to go.
How widely these positive trends propagate will have huge impacts for the future. Over the next couple of decades trillions of dollars will be invested in urban infrastructure. Around 70 – 85 percent of this investment will be made by the private sector. Whether this investment comes in the form of ‘resilient’ investment, or not, will have a huge impact on how vulnerable people and businesses are to future natural hazards. As the new global framework for disaster risk reduction is negotiated for 2015 it will be important to ensure it’s designed so that both governments and businesses are enabled in their management of disasters.