GAR 2013 Main Report

178 Part III

Business investment decisions are not taken in a vacuum. Seasoned investors weigh possible profits and risks, deciding whether to spread risk through insurance and how to manage uncertainty. Investors—private and institutional—operate similarly in an attempt to maximise return on investment. Insurance companies seek to price risk so that market share and profitability are maximised; risks are managed; and insolvency avoided. National and local governments also compete to attract investment while attempting to manage associated risks and costs.

These competing interests created tension, which requires the stakeholders involved to negotiate perceived trade-offs. But recently, the concept of shared value and its focus on the interdependency of business, investment, insurance and public regulation and service provision has been recognised as a more mature approach to competitiveness (Porter

and Kramer, 2006 and 2011). When considering the different types of risk and risk layers as laid out in the first part of this report, businesses—ranging from small informal traders to large multinational corporations—may be impacted differently, but will all have an interest in bringing down risk levels and strengthening resilience.

For example, a small shop owner in an informal settlement who is most likely unable to take out individual insurance on his dwelling and stock will have a vested interest in his settlement’s association and municipality to maintain electricity, water supply and drainage systems in case of local floods.

Although the CEO of a large diversified global consumer goods company may not be too concerned about the flooding of one of its numerous plants located in the same municipality, the local manager will have a vested interest in uninterrupted local

Figure III.1 Risk layers, differentiated impact on and relevant risk management strategies for business

(Source: UNISDR)