Risk Driver

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Globalized economic development

Globalized economic development has resulted in increased polarization between the rich and poor on a global scale. This has increased vulnerability to natural disasters in some cases, whilst increasing exposure to hazards in others as more (and often more valuable) assets are developed in hazard-prone areas.

Despite currently increasing the exposure of assets in hazard prone areas, globalized economic development provides an opportunity to build resilience if properly managed. By participating in risk-sensitive development strategies such as investing in protective infrastructure, environmental management, and upgrading informal settlements, risk can be reduced.

As the new global economy facilitated the dominance of certain regions, cities, and groups in the world economy, it also fostered the marginalization of others (Gencer, 2013). The poverty and inequality created by this polarized new world order and economy is expected to have changed or increased vulnerability from natural disasters (Gencer, 2013). At the same time, dominance and increase of wealth in certain regions and cities are expected to have increased hazard exposure (Gencer, 2013). More assets and more expensive assets may be built in hazard prone areas. As competition increases, large flows of investment may continue to stream into hazard-exposed areas, leading to further increases in intensive risk (UNISDR, 2015a).

STORY

Low-income households forced to settle in high risk areas: Brazil

Rocinha, Rio de Janeiro, one of the largest favelas in Brazil. © Igor Fernando CC BY-NC 2.0

Brazil

Low-income households in Brazil are often forced to settle in areas with limited basic infrastructure and services due to prime urban land held by landowners for future profit.

SOURCE: UNISDR, 2013

The Hyogo Framework for Action (HFA) has generally been implemented from the perspective that disasters are external and unforeseen shocks acting on a normally functioning system (UNISDR, 2015a). The approach has therefore been to try to manage disasters by building resilience to these exogenous disasters . However, the losses and impacts that characterize disasters usually have as much to do with the exposure and vulnerability of capital stock or endogenous risk as with the severity of the hazard event (UNISDR, 2013). Many national risk-financing strategies still reflect a vision of disasters as exogenous shocks rather than of risk as an endogenous characteristic of investment flows (UNISDR, 2013).

Although the momentum in selected countries to change to addressing risk as an endogenous phenomenon is encouraging, the global debate still reflects a vision of disasters as exogenous shocks (G20/OECD, 2012).

Disasters are not the outcome of a natural hazard event occurring. They are caused by an amalgamation of the natural hazard event, combined with highly vulnerable assets exposed to the hazard. Disasters are therefore manifestations of unresolved development problems, rather than external, unforeseen events acting on a society. In order to reduce the impact of these potential disasters, strategies need to be aimed at building resilience in development, addressing the underlying risk factors.

In the private sector, risk considerations are often limited to financial risk and internal rates of return on investment. In the best of cases disaster risk is considered an externality rather than reflecting complex relationships between development and society (Lavell et al, 2013). Development gains are privatized and disaster losses socialised or usually subsidized by the public sector or treasury as residual risk (Lavell et al, 2013).

There is evidence of rising economic loss risk from business investments in hazard-exposed regions (UNISDR, 2013).

Land use zoning, building codes and environmental regulations are all regularly distorted by implicit and explicit corruption as the implacable logic of privatizing short-term gains and socializing the resultant risks to other sectors through space and time takes precedence over considerations of sustainability (Lavell et al, 2013).

STORY

Economic development and poor regulation: increased disaster risk in Dhaka

Khaleda Begum, survivor of the Rana Plaza building collapse in Dhaka. © ILO/Muntasir Mamun CC BY NC-ND 2.0

Bangladesh

Dhaka's industry and service sectors have grown, leading to a boom in real estate. However, regulation is limited and has increased the disaster risks.

SOURCE: UNISDR, 2013

Risks are produced though large numbers of individual public and private investment decisions (including the decision not to act) taken over long periods - making it difficult to attribute responsibility, ownership or liability (UNISDR, 2013). While real estate development and infrastructure projects may generate new disaster risks, these are then transferred from developers to the ultimate users of urban development, reducing accountability (UNISDR, 2013).

The cost of risk financing is likely to grow except in countries that are making major investments in risk reduction (UNISDR, 2013).

Opportunities for resilience

Economic growth is an opportunity for building resilience, but current patterns of economic development are driving the exposure of assets in hazard prone areas (UNISDR, 2015a).

Globalized economic development provides an opportunity to build resilience, despite currently increasing the exposure of assets in hazard prone areas (UNISDR, 2015a). Investing in risk reduction measures to protect a floodplain against a 1-in-20 year flood may have encouraged additional development on the floodplain in a way that actually increases the risks associated with a 1-in-200 year flood (UNISDR, 2015a). Although exposure and intensive risk have increased over time, many cities and countries reduce their extensive risk through, for example, investments in protective infrastructure, environmental management and upgrading of informal settlements (UNISDR, 2013).

Indicators suggest that climate change is likely to increase the frequency and magnitude of some natural hazard events; at the same time, the underlying risk factors are increasing globally (UNISDR, 2015). To be able to address these issues in the coming future, strategies must adapt a different approach to disaster risk management, before disaster risk exceeds the resources and capacities of future generations to adapt and recover. Rather than trying to build resilience to disasters, the focus must shift to building resilience in the development sector.

We need to recognize the links between privatized economic benefits, on the one hand, and socialized risks, including disaster risk, on the other hand, and the different channels through which risks are accumulated, shared and transferred, between sectors, in space and time (Lavell et al, 2013). Disaster risk, as with other types of risk is constructed as much from the development and increase in resources and assets, as from the natural hazard occurrence (Lavell et al, 2013). Understanding this would also help to address how one sector's adaptation or risk management, could be another sector's heightened risk (Lavell et al, 2013).

STORY

Colombia: National and local priority with a strong institutional basis for DRR

In Medellín, Colombia, the city government is investing in disaster risk reduction systems. © Marcelo Druck CC BY-NC-ND 2.0

Colombia

Colombia has integrated disaster risk management within its national development plan, including disaster risk reduction funds in their national budget.

SOURCE: UNISDR, 2009

Even in today's globalised economy, national governments and local administrations remain one of the most important mediators and regulators of private investment and, therefore, disaster risk management. Governments will have to expand their approach to risk governance to include the creation of incentives for risk sensitive investment alongside their existing promotion of economic growth (UNISDR, 2013). This is particularly pertinent owing to evidence of rising economic loss risk from business investments in hazard-exposed regions (UNISDR, 2013). Policy-makers in national government institutions and international organisations, although beginning to recognise changes in the nature of risks and risk management requirements, are still limited in their capacity to comprehensively assess and address identified risks and future uncertainty (World Bank, 2012a; Kent, 2013 in UNISDR, 2013).

Related

Related Sections on Preventionweb

Components of Risk

Disaster Risk
Risk is a forward looking concept, so disaster risk can be understood as the likelihood (or probability) of loss of life, injury or destruction and damage from a disaster in a given period of time (adapted from UNISDR, 2015a).
Hazard
A dangerous event that may cause loss of life, injury or other health impacts, as well as damage and loss to property, infrastructure, livelihoods and services, social and economic disruption and, or environmental damage is known as a hazard (UNISDR, 2009b).
Exposure
The presence and number of people, property, livelihoods, systems or other elements in hazard areas (and so thereby subject to potential losses) is known as exposure (UNISDR, 2009b and IPCC, 2012).
Vulnerability
The name given to the set of characteristics and circumstances of a community, system or asset that make it susceptible to the damaging effects of a hazard is vulnerability.

Risk Drivers

Climate change
Climate change can increase disaster risk in a variety of ways – by altering the frequency and intensity of hazard events, affecting vulnerability to hazards, and changing exposure patterns.
Environmental degradation
Environmental degradation is both a driver and consequence of disasters, reducing the capacity of the environment to meet social and ecological needs.
Globalized economic development
Globalized economic development can lead to increased exposure of assets in hazard-prone areas, leading to further increases in intensive risk if not managed.
Poverty & inequality
Poverty is both a driver and consequence of disasters, and the processes that further disaster risk related poverty are permeated with inequality
Poorly planned urban development
Whether or not disaster risk is factored into investment decisions in urban development will have a decisive influence on the future of disaster risk reduction.
Weak governance
Governance of disaster risk management must be improved, not only through specialized and stand-alone sectors, but also through strengthened governance arrangements across sectors and territories in order to address disaster risk.

Key Concepts

Capacity
Capacity refers to all the strengths, attributes and resources available within a community, organization or society that can be used to achieve agreed goals.
Deterministic & probabilistic risk
Deterministic risk considers the impact of a single risk scenario, whereas probabilistic risk considers all possible scenarios, their likelihood and associated impacts
Direct & indirect losses
Direct disaster losses refer to the number of people killed and the damage to buildings, infrastructure and natural resources. Indirect disaster losses include declines in output or revenue and generally arise from disruptions to the flow of goods and services.
Disaster risk reduction & disaster risk management
DRR is the policy objective of anticipating and reducing risk. Although often used interchangeably with DRR, DRM can be thought of as DRR implementation, since it describes the actions that aim to achieve the objective of reducing risk.
Intensive & extensive risk
Extensive risk is used to describe the risk of low-severity, high-frequency disasters, mainly but not exclusively associated with highly localized hazards. Intensive risk is used to describe the risk of high-severity, mid to low-frequency disasters, mainly associated with major hazards.
Resilience
Resilience refers to the ability of a system, community or society exposed to hazards to resist, absorb, accommodate to and recover from the effects of a hazard in a timely and efficient manner.
Sovereign risk
Sovereign risk is the economic impact a government would face in the event of a disaster.

Models

Risk modeling
We need data on hazard, exposure, vulnerability and losses in order to understand and assess disaster risk.

Datasets

Datasets
Data and statistics are important in understanding the impacts and costs of disasters.
Data Viewers
Open access, online data viewers present hazard, disaster, and risk data in an easily accessible manner.

EDITED 12 NOV 2015 BY: PREVENTIONWEB EDITOR