Disaster: the risk & the reward

The UN is calling for more action from the private sector on disaster risk reduction. A new report by  PwC & the UN International Strategy for Disaster Risk provides ample business case says Oz Ozturk, partner, PwC.

In the world of international diplomacy, we’re used to measured language, that seeks to inform, but doesn’t seek to shock.

So last week’s launch in New York by the UN Secretary General Ban Ki Moon of the bi-annual Global Assessment of Risk made for sobering listening. Economic losses from disasters were described as “out of control”, and the evidence I heard at the launch to back that statement, was equally stark. 

Mounting losses  this century from catastrophic events are topping $2.5 trillion. Direct losses from floods, earthquakes and drought were reported as under-estimated by at least 50%. Disaster risk was described in the GAR13 as ‘a new multi-trillion dollar asset class’.

The UNISDR/PwC report Working together to reduce disaster risk examined disaster risk management approaches and experiences in 14 leading global businesses. It’s  launched as part of a new initiative led by UNISDR and PwC to link private sector businesses of all sizes in disaster planning, offering an assessment tool to help companies identify where their companies’ plans stand, and where gaps exist in the management of disaster risk.

Businesses taking part in the report undertook a pilot assessment of their risk management activities which showed that while good practices existed for disaster risk reduction for corporate-owned assets, the level of understanding and ability to manage risks in local supply chains overseas was far lower.

Business growth in hazard-prone parts of the world is leaving the private sector more exposed to disaster risk. Large multinationals’ dependencies on international supply chains, infrastructure and markets poses a systemic risk to ‘business as usual’.

The private sector has witnessed increasing numbers of occasions of indirect impacts of natural disasters amplifying losses globally through commodity price rises, supply chain disruption, workforce dislocation, asset damage, and lost or damaged infrastructure.

Then there is climate change. It's widely expected that the coming decades will see significant shifts in the frequency, severity and distribution of extreme climate-related events. This could impact security of supply, business continuity, asset damage and operating conditions. If investment and risk management decisions are based on past experiences only, business will become increasingly more exposed to losses in the future.

The report highlights how even businesses with established risk management systems in place need to do more to protect themselves fully against natural disasters. Small more vulnerable enterprises in developing economies, do not have the capacity to strengthen their  risk management and overall supply chain resilience alone. Some large businesses rely on the insurance industry alone for risk assessments, with most having only limited access to disaster risk information on which to base investment decisions.

Globalisation, of almost every industry, means the risks posed by natural disasters go well beyond the boundaries of a company’s operations.  The businesses we interviewed understand they need to do more than just do business in the communities they are working in.

The report does identify encouraging signs of change. Public-private partnerships in risk management have proven their worth during several disasters, including the 2010 and 2011 earthquakes in Christchurch, New Zealand. Businesses are also collaborating together to deliver new solutions to improve resilience for others - from index insurance products, to water efficient irrigation technologies and disaster early warning text alerts.

This is ultimately about improving safety for all, and the security of supply chains and economic growth, and this initiative will provide a common platform for understanding disaster risk management in the private sector across businesses of all sizes, in any industry or sector.

View the full report: www.pwc.com/resilience