Recent hazards that occurred in Japan and Thailand in 2011 and United States in 2012 drew attention to how such catastrophes can impact businesses, which isn’t restricted to the factory gates. Businesses rely on infrastructure and urban systems run by public authorities 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. In today’s globalised world, even businesses in safe locations may be affected by disasters that hit suppliers and partners on another side of the globe.
Businesses also risk the long-term effects of hazards such as loss of market shares, employees’ departure, with relationships with suppliers, partners and customers potentially eroded. Competitiveness is also at stake when hazards occur.
Decades of businesses decentralising and outsourcing production to facilities located in areas with comparative advantages, such as low labour costs and easy access to export markets, has been critical to enhancing competitiveness and productivity. But many of these areas are hazard prone. Decentralisation has dramatically increased the exposure of businesses and their supply chains to devastating hazards.
Needless to say, globalisation offered critical gains for the economy in terms of productivity and efficiency. But in the meantime, those gains were attained at the expense of an over-accumulation of disaster risk in many business sectors and in the global economy as a whole. Risks and related costs are part transferred and externalised to governments, society as well as future generations. Whilst hazards affect lower-income countries, communities and households, and those who benefit least from wealth creation on a short-term perspective, companies face losses on a long-term perspective as hazards affect supply chains, facilities, infrastructure, etc. With a long or short-term perspective, risk is shared as much by the poor and wealthy population wherever they are.
In this context of higher risks for all international and local actors, risk reduction holds a brand new signification. It becomes more relevant for all the actors to take risk reduction into consideration as it offers much more opportunities for resilience and competitiveness rather than imply costs.
To overcome the situation, larger businesses are investing to strengthen their capacities and strategies for risk management. Institutional investors, with responsibilities to their shareholders to ensure prudence and sustainability, are now exploring regulatory and voluntary actions to increase the visibility of all risks, including those associated with disasters and climate change.
Effective disaster risk management becomes a basic requirement for competitive countries and cities that are successful in attracting business investment. Growing convergence of public and private initiatives to model and estimate disaster risks is beginning to underpin these efforts. In this regard, disaster risk management becomes an interesting path of shared value for businesses, and this component for development and disaster risk reduction that will be adopted in 2015.
GAR 2013 video:
The whole report is available online.