UN SecretaryGeneral warns: Economic losses from disasters are out of control

Thu 16 May 2013 at 17:25 Miscellaneous

NNA - The United Nations today issued a stark warning to the world's business community that economic losses from disasters are "out of control" and will continue to escalate unless disaster risk management becomes a core part of business investment strategies.

UN Secretary-General, Ban Ki-moon, said: "Governments bear the responsibility for disaster risk reduction. But the level of risk is also related to the where and the how of investment by the private sector, which is responsible for 70 to 85% of worldwide investment in new buildings, industry and critical infrastructure."

He continued: "We have carried out a review of disaster losses in 56 countries. Our startling finding is that direct losses from floods, earthquakes and drought have been underestimated by at least 50%. So far this century, direct losses from disasters are in the range of $2.5 trillion. This is unacceptable when we have the knowledge to reduce the losses and benefit from the gains.

"Let us not shy away from the meaning of these numbers: Economic losses from disasters are out of control. They can only be reduced in partnership with the private sector, including investment banks and insurance companies. For too long, markets have placed greater value on short-term returns than on sustainability and resilience. At long last, we are coming to understand that reducing exposure to disaster risk is not a cost but an opportunity to make that investment more attractive in the long-term."

The UN Secretary-General was speaking today as he launched a ground-breaking report from the UN Office for Disaster Risk Reduction (UNISDR) which is built on important new data sets including reviews of national disaster loss databases, survey responses from 1,300 SMEs in disaster-prone locations in the Americas, and a review of risk management in 14 major corporations including ABB, ARUP, BG Group, Citigroup, General Electric, HCC Group, HIRCO Group, Hitachi Group, InterContinental Hotels Group, Nestl, NTT East Corporation, Roche, Shapoorhi Pallonji&Co. Ltd., and Walmart.

The UNISDR 2013 Global Assessment Report on Disaster Risk Reduction (GAR13): Creating Shared Value: the Business Case for Disaster Risk Reduction 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.

A new global risk model, developed by UNISDR and partners, demonstrates that annual average losses from just earthquakes and cyclonic winds can be expected to be in the range of $180 billion this century. 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.

UNISDR Chief, Margareta Wahlstrom, speaking also at today's launch said: "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.

"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."

GAR2013 analyses three key global investment sectors -- urban development, agribusiness, and coastal tourism -- and reveals that prevailing business models in each sector continue to drive disaster risk.

Mr. Joseph Rizzo, UN Global Relationship Partner of PwC, said: "Working with 14 of the world's leading businesses we have been able to identify critical elements for good practice in reducing risk. 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."

The report also identifies 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.

GAR2013 surveys 1,300 small and medium-sized businesses in six disaster-prone cities in the Americas and finds that three-quarters 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. Yet only a minority of the companies surveyed -- 14.2 percent in the case of companies with fewer than 100 employees -- had even a basic approach to crisis management in the form of business continuity planning.

Ms. Wahlstrom said: "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. This will be a major focus of next week's Global Platform on Disaster Risk Reduction in Geneva."


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