Global Assessment Report on Disaster Risk Reduction 2015
Making development sustainable: The future of disaster risk management |
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benefits of public and private investments in development. In the case of countries and national governments, reliable and resilient critical infrastructure then becomes an integral component of strategies to enhance competitiveness and sustainability and to attract investment (UNISDR, 2011a
UNISDR. 2011a,Global Assessment Report on Disaster Risk Reduction: Revealing Risk, Redefining Development, Geneva, Switzerland: UNISDR.. . UNISDR. 2013a,Global Assessment Report on Disaster Risk Reduction: From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction, Geneva, Switzerland: UNISDR.. . At present, the application of cost-benefit analysis in disaster risk management is usually limited to considering the avoided replacement costs of damaged buildings or infrastructure versus the additional costs of reducing risks. This analysis needs to be expanded to highlight the trade-offs implicit in each decision, including the downstream benefits and avoided costs in terms of reduced poverty and inequality, environmental sustainability, economic development and social progress as well as a clear identification of who retains the risks, who bears the costs and who reaps the benefits.
This approach will not only provide a much more compelling case for disaster risk reduction but also help to clarify questions of accountability, namely who exploits and benefits from the opportunities represented by risk, who suffers the consequences if risks are not managed, and who bears the costs. Currently ongoing work to measure the costs and benefits of ecosystem services (TEEB, 2013
TEEB (The Economics of Ecosystems and Biodiversity). 2013,The Economics of Ecosystems and Biodiversity for Water and Wetlands. . Adequate risk metrics produced in this way could enable both public-sector and business investment decisions to take a layered approach to managing risk.
Fundamentally, this involves determining the optimum balance in terms of how much to invest in prospective, corrective and compensatory
disaster risk management strategies (UNISDR, 2011a
UNISDR. 2011a,Global Assessment Report on Disaster Risk Reduction: Revealing Risk, Redefining Development, Geneva, Switzerland: UNISDR.. . If the definition of costs and benefits is expanded to include not only those applicable to business and to government but a shared value approach that includes the value of wider societal and environmental costs and benefits, then risk layering can dramatically change the character and impact of public and private investment decisions.
Encoding disaster risks into the financial system
Disaster risk metrics can and should also be fully encoded into the financial system. New initiatives such as the 1-in-100 Initiative7 have already begun to point in that direction, recommending that disaster risk metrics should be available to institutional investors, including pension and sovereign wealth funds. These metrics should be used to measure not only the potential risks inherent in portfolios of assets, which can represent a risk to those investing in these instruments, but also the broader risks posed by the investments.
For example, if a given investment portfolio is excessively concentrated in urban development in highly hazard-exposed locations, then it poses risks to investors themselves that need to be made explicit (e.g. by measuring the AAL as a percentage of the exposed portfolio). At the same time, the risks posed by these investments to the regional economies and urban centres where they are made also need to be stated explicitly.
Risk metrics can also make it possible to identify the risk financing gaps that governments
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