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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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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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In future, trillions of dollars of new business investment will pour into hazard-exposed regions, largely determining the outlook for disaster risk. In most economies, only 15–30 percent of this investment is made directly by the public sector.1 How the other 70–85 percent of investment is made, therefore, has far-reaching consequences on disaster risk accumulation and on underlying risk drivers.
Yet, the relationship between business investment practices and disaster risk is poorly understood. Building on the findings of the two previous reports (GAR09 and GAR11), the 2013 Global Assessment Report on Disaster Risk Reduction (GAR13), 'From Shared Risk to Shared Value: The business case for disaster risk reduction', seeks to fill that gap. It explores why increasing disaster risks represent a growing problem for the economic and business community at different scales.
The major disasters that struck Japan and Thailand in 2011 and the United States of America in 2012 revealed how such catastrophes can impact businesses. Earthquakes, floods and storms can damage exposed and vulnerable factories, offices and other facilities and resources, interrupting and paralysing output and business processes.
But disaster risk does not stop at the factory gate. Businesses depend on infrastructure and urban systems run by utilities and the public sector. Damage to transport and energy networks, ports and airports or to neighbourhoods where employees live interrupts business and imposes additional costs. And in today’s globalised world, even
businesses in safe locations may be affected by disasters that hit suppliers and partners on the other side of the globe.
Extended insurance coverage may enable businesses to compensate for both direct loss as well as supply chain interruption. But disasters have broader, more pervasive effects on business competitiveness. When business is interrupted, skilled workers may leave, market share may be lost to competitors, relationships with key suppliers and partners may be severed and confidence and reputation may be eroded. Once business is lost, it may never come back.
Businesses, of course, come in many shapes and sizes. And different sizes are exposed to different kinds of risk. Small businesses, for example, that serve local markets are affected directly by localised extensive disasters, as associated with flooding or landslides. These businesses also depend heavily on local public infrastructure. Destruction of a bridge in a flash flood, for example, may isolate a local smallholder farm, workshop or restaurant from markets and suppliers for days. And many such businesses go bankrupt because they lack the cash flow or reserves to be resilient.
Large global corporations, at the other end of the spectrum, and owing to their diversity and scale, are largely buffered from local impacts in any particular place. However, a major intensive disaster may critically disrupt their supply chains and global operations; for example, if a major trans-shipment hub or key supplier is affected. And the recurrent impact of smaller disaster events in regions where corporations seek to establish effective clusters of suppliers and vibrant consumer markets may result in equally significant losses in the medium to long term. Medium-sized enter-
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