GAR 2013 Main Report

240 Chapter 16

Increasing awareness of disaster risks

One obstacle to integrating disaster risk considerations into broader corporate risk management is a lack of awareness of its critical importance among corporate leaders and senior executives. Until there is greater awareness of the risks that they currently face and that may have been created through uninformed investment decisions, businesses will continue to be surprised by disasters.

At present, disaster risk management is not explicitly included in the risk management curriculum of a majority of business schools and is rarely featured in leading business journals. By adding risk management to existing business school curricula, the way that risks are managed in businesses could begin to shift.

If levels of disaster risk and its management were included systematically as an indicator in surveys of risk and business performance, and in analyst forecasts and reports, this would equally provide a strong incentive for businesses to strengthen their disaster risk management function. As further explored below, it would also encourage governments to invest in more effective disaster risk management.

Strengthening disaster risk management in small and medium enterprises (SMEs)

As Chapter 11 highlighted, although large global corporations have risk management departments, few SMEs have the capacities to analyse or address their disaster risk. However, the growing concern of large businesses with supply chain vulnerability and resilience may provide a vehicle to support and strengthen disaster risk management in SMEs.

Rapid progress is currently being made in analysing and modelling supply chain risks. Businesses are examining different strategies to reduce supply chain risk including adding inventories; shortening supply chains and increasing supply chain visibility; design information portability; diversifying risks by creating redundancy; defining alternative distribu-

tion channels and suppliers; enhancing relationships with supply chain partners; relocating or protecting high-risk facilities; and working closely with the public sector. For example, sourcing from only one supplier can reduce production costs, but increases risk if that supplier is affected in a disaster. Although having multiple suppliers in different locations may raise transaction costs, it reduces the risk of disruption by securing supply substitutes. Similarly, businesses are now increasingly selecting suppliers on the basis of risk criteria rather than purely on cost minimization.

SMEs play a critical role in most supply chains. Large businesses have a vested interest in ensuring that their supply chain partners, including SMEs, are managing their disaster risks. Supply chain risk management may therefore become a vehicle through which large businesses with the necessary capacities can strengthen disaster risk management in SMEs, which lack those capacities.

16.3

Eye swide open: integrating

disaster risk information into

business investment decisions

Businesses will continue to invest in hazard-exposed locations given the comparative advantages that many of these places offer and because infrastructure and supply chains are already in place. Often, accepting a certain level of risk in a location can give a business a competitive advantage. But by integrating disaster information into a broader analysis, using appropriate risk metrics and open access information can mean that investment decisions are taken with eyes wide open.

Identifying risk appetite

Businesses in the tourism sector will continue to invest in SIDS; in the agribusiness sector, in countries with large areas of potentially productive farmland; and in the urban development sector, in rapidly expanding cities in low and middle-income countries.