GAR 2013 Main Report

Large global corporations, at the other end of the spectrum and owing to their diversity and scale, are largely buffered from local impacts in any particular place. However, a major intensive disaster may critically disrupt their supply chains and global operations; for example, if a major transhipment hub or key supplier is affected. And the recurrent impact of smaller disaster events in regions where corporations seek to establish effective clusters of suppliers and vibrant consumer markets may result in equally significant losses in the medium to long term. Medium-sized enterprises and national industries similarly face different kinds of disaster risk as they may be affected by both relatively small-scale localised events and larger disasters.

Creating shared risks

Although hazards such as earthquakes, cyclones and tsunamis are natural in origin, there is nothing natural about the way disaster risk has become embedded in the contemporary business landscape. 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 business competitiveness and pro- ductivity. However, because many of these areas are hazard prone, it has dramatically increased the exposure of businesses and their supply chains to devastating hazards.

Investors have paid insufficient attention to this growing hazard exposure and its threat to business resilience, competitiveness and sustainability. Country briefings, analysts’ reports, competitiveness indices and business forecasts rarely mention disaster risk, even in high-risk regions. Cities and countries, competing to attract investment, have generally downplayed the risks, in some cases even offering incentives to businesses to locate in hazard-exposed areas. And the pricing of risk in insurance markets has yet to act as an effective dis-incentive to investment in hazard-exposed areas.

In other words, economic globalisation has enabled

critical gains in business productivity and efficiency, but those gains have been at the expense of an over- accumulation of disaster risk in many business sectors and in the global economy as a whole.

Many of these risks and costs are externalised, transferred to and shared with governments, society at large and future generations. As GAR09 highlighted, disasters disproportionately affect lower-income countries, communities and households, and those who benefit least from wealth creation owing to economic globalisation.

However, from the perspective of shared value, this process of risk transfer is far from external to business. Losses to public infrastructure and services, to the workforce and to ecosystems also ultimately threaten the sustainability of all businesses—large and small—and thus in the medium to long term, become a shared risk.

The business case for disaster risk reduction

In today’s global economic and political turmoil, rapid technological change and increasing inter-connectedness of global trade, financial markets and supply chains, larger businesses perceive an increasingly riskier world. For businesses, this means an array of complex, unpredictable events and sudden change in which risks can manifest swiftly and unexpectedly, with far-reaching ramifications.

Within this landscape, the reduction of disaster risks is taking on new significance and urgency for all global players. Investments in disaster risk management are increasingly being seen less as a cost and more of an opportunity to strengthen resilience, competitiveness and sustainability.

Larger businesses are investing to secure and strengthen their capacities and strategies for risk management. Institutional investors, with a fiduciary responsibility 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

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Preface