Global Assessment Report on Disaster Risk Reduction 2013
From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction |
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118 Part II
In May 2012, earthquakes of magnitudes of up to 6.0 on the Richter scale shook the Emilia Romagna region in Italy, followed by almost 2,000 aftershocks; the economic impacts —both immediate and downstream— unexpectedly reverberated across industries as varied as agribusiness, biotechnology, real estate and tourism (see Box II.1).
In March of the same year—just two months before the earthquakes—the Emilia Romagna region had been ranked as the fifth most attractive Southern European region and the first in Italy for business by the Financial Times foreign investment specialist division. i But even if disaster risk had been considered, and had negatively affected the ranking, business activity in the region may not have been significantly lower.
Investing in hazard-prone locations rarely reflects irrational behaviour by individual business investors. On the contrary, as highlighted in Chapter 2, many such areas offer comparative advantages that translate into higher productivity, profitability and competitiveness. Multiple investments over decades, however, have accumulated high levels of disaster risk, which now negatively affect the very competitiveness that investments sought in the first place. At the same time, risks are externalised
or transferred across space and time to other locations and sectors. This ‘external risk neglect’ or shared risk affects economic sustainability as a whole (Berger et al., 2010
Berger, A., Brown, C., Kousky, C. and Zeckhauser, R. 2010.,The Five Neglects: Risks Gone Amiss., In: Learning from Catastrophes. Strategies for Reaction and Response., Kunreuther, H. And M. Unseem, 2010,New Jersey: Wharton School Publishing: 83-99.. . Part II of this report examines whether, how and why businesses have factored disaster risk into their investment decisions and with what consequences. This is examined in three risk-sensitive sectors: urban development; tourism; and agribusiness. The three chapters reflect on the perceived trade-offs between productivity and growth, on the one hand, and internalised and externalised risks, on the other hand, which characterise investment in these sectors.
Chapter 8 examines investments in the urban development sector, in particular the role of speculative investment, public regulation and major infrastructure projects in structuring-shared urban risks and costs.
Chapter 9 focuses on the tourism sector, with particular attention to tourism in SIDS. The chapter analyses the relative dependency of small and undiversified economies on tourism investments and revenues. It also explores the potential economic value of disaster risk management for businesses and national economies invested in tourism.
Box II.1
(Source: UNISDR)
Emilia Romagna is one of Italy’s most productive regions, accounting for 10 percent of the country’s GDP, and boasting one company
for every ten inhabitants; most companies are small to medium-sized enterprises, but several are also large multinational corporations,
including in the biomedical sector.ii
Emilia’s four most affected provinces provide almost 60 percent of the region’s employment, spread over a range of industries
including global automobile brands, pharmaceutical and biomedical plants, fashion and textiles, and construction firms (Government
of Italy, 2012). Regional food production is of national importance and was significantly affected by the series of earthquakes
that hit the region in 2011 and then again in 2012 when the quakes destroyed production facilities, and significantly affected the
plants and investments of many multinational biomedical companies.iii
An in-depth economic study of the damage assessed direct losses, including losses suffered by public and private sectors,
at US$11.5 billion (Government of Italy, 2012
Government of Italy. 2012.,Italian Application to Mobilize the European Union Solidarity Fund - EUSF. Earthquakes May 2012 in the area of the regions: Emilia-Romagna, Lombardia and Veneto., Civil Protection Department, Government of Italy.. . Aon Benfield. 2012b.,Impact Forecasting: May 2012 Global Catastrophe Recap.. Available at http://thoughtleadership.aonbenfield.com/Documents/201206_if_monthly_cat_recap_may.pdf. |