Losses from disasters will stay “out of control” unless disaster risk management made core part of business strategies: UN

Direct losses from disasters are approximately $2.5 trillion to date this century, according to a report from The United Nations Office for Disaster Risk Reduction (UNISDR).

The United Nations has issued a stark warning to the world’s business community that economic losses linked to disasters are “out of control” and will continue to escalate unless disaster risk management becomes a core part of business strategies, the UNISDR said.

“We have carried out a thorough review of disaster losses at national level and it is clear that direct losses from floods, earthquakes and drought have been under-estimated by at least 50%,” UN Secretary-General Ban Ki-moon, said.

“Economic losses from disasters are out of control and can only be reduced in partnership with the private sector which is responsible for 70% to 85% of all investment worldwide in new buildings, industry and small to medium sized enterprises. The principles of disaster risk reduction must be taught at business schools and become part of the investor’s mind-set.”

The report, The UNISDR 2013 Global Assessment Report on Disaster Risk Reduction (GAR13): Creating Shared Value: the Business Case for Disaster Risk Reduction, is based on data sets, including reviews of national disaster loss data bases in 40 countries, survey responses from 1,300 small and medium enterprises in disaster-prone locations in the Americas, and a review of risk management in 14 major corporations.

It highlights how the transformation of the global economy over the last 40 years has led to rapid increases in disaster risk in low, medium and high-income countries, the UNISDR said.

The annual average losses from just earthquakes and cyclonic winds can be expected to be in the range of $180 billion this century, as demonstrated by a new global risk model developed by UNISDR and partners. The report makes a strong case that globalization, the search for lower costs, higher productivity, and just-in-time delivery are driving business into hazard-prone locations with little or no consideration of the consequences on global supply chains, the UNISDR said.

Want to get your hands on the 2013 Global Assessment Report for Disaster Risk Reduction #GAR13? Download it here: ow.ly/l3t3a

— UNISDR (@unisdr) May 15, 2013

“In a world of on-going population growth, rapid urbanization, climate change and an approach to investment that continually discounts disaster risk, this increased potential for future losses is of major concern,” Margareta Wahlström, UNISDR chief, said.

“In the wake of the global financial crisis, disaster risk stands as a new multi-trillion dollar class of toxic assets of unrealized liabilities. The catastrophic economic losses from the Japan earthquake/ tsunami, floods in Thailand and the destructive Super Storm Sandy show clearly the extent of what is at stake.”

Analyzing three key global investment sectors — urban development, agribusiness and coastal tourism — the report revealed that prevailing business models in each sector continue to drive disaster risk.

“Working with some of the world’s leading businesses, we have been able to identify critical elements for good practice in reducing risks posed by natural disasters,” Oz Ozturk, PwC partner and the firm’s global leader for the UNISDR initiative, said.

The UNISDR teamed with PwC to conduct some of the research and analysis for the report. “It is clear from our discussions that senior executives are increasingly aware of the vulnerability of their businesses to disasters and are beginning to prioritize the strengthening of their risk management. For the private sector, the business case for stronger disaster risk management is clear: it reduces uncertainty and builds confidence, cuts costs and creates value.”

There are encouraging signs of change identified in the report: Public-private partnerships in risk management have proven their worth during several disasters, including the 2010 and 2011 earthquakes in Christchurch, New Zealand.

Three-quarters of the 1,300 small and medium-sized businesses surveyed in six disaster-prone cities in the Americas have suffered business disruptions related to damaged or destroyed power, telecommunications and water utilities demonstrating the inter-dependence between the private and public sectors when it comes to disaster risk management.

But only 14.2% of companies with fewer than 100 employees had even a basic approach to crisis management in the form of business continuity planning.

“The beginnings of changing attitudes in the private sector now need to transform into a more systematic approach to disaster risk management in partnership with the public sector to make the world a safer place,” UNISDR’s Wahlström said.

“As we approach 2015 international efforts are intensifying to formulate a new framework for disaster risk reduction to replace the current Hyogo agreement. Ensuring that the business case for disaster risk reduction is explicitly included in that framework will provide a critical incentive for the constructive engagement by business on which future resilience, competitiveness and sustainability depend.”