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Global Assessment Report on Disaster Risk Reduction 2013
From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction |
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Global Assessment Report on Disaster Risk Reduction 2013
From Shared Risk to Shared Value: the Business Case for Disaster Risk Reduction |
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often hazard-exposed. As Box 2.1 shows, the dependence of supply chains on logistical and transportation nodes such as ports and airports, further increases risk.
Businesses have demonstrated that supply chain efficiency can be increased by reducing inventories, shortening transportation times and streamlining production. However, these measures may undermine supply chain resilience (
 Haraguchi and Lall, 2012 Haraguchi, M. and Lall, U. 2012.,Flood Risks and Impacts. Future Research Questions and Implications to Private Investment Decision-Making for Supply Chain Networks., Background Paper prepared for the 2013 Global Assessment Report on Disaster Risk Reduction. Geneva, Switzerland., Geneva,Switzerland: UNISDR.. Click here to view this GAR paper. Ye, L. and Abe, M. 2012.,The Impacts of Natural Disasters on Global Supply Chains., Asia-Pacific Research and Training Network on Trade. ARTNeT Working Paper Series N°.115 / June 2012. ESCAP., Bangkok,Thailand.. . Investors need to be aware that small and medium enterprises (SMEs) often play a key role in supply chains, providing small quantities of labour-intensive components and services. As noted above, SMEs may be more vulnerable and less resilient than larger businesses, as they are generally undiversified and underinsured.
2.5 Shared risks
The risk of losses and negative impacts from disasters is often transferred or shared over space and time. Business investments that increase disaster risk may directly increase the cost of disasters to affected communities. Government regulation that fails to protect critical infrastructure may result in high costs to businesses from power outages, communications failures and collapse of transport systems. Similarly, today’s new risks will be experienced by tomorrow’s generations.
As new business investments are made in hazard-
exposed areas, disaster risks to the business itself are generated. But other risks, often referred to as external social and environmental costs, are in effect transferred to or shared with other sectors including the public sector. When investment decisions are made, businesses may not take into account how disaster risks may threaten their own operations—it is even less usual for businesses to account for risks that are shared with others. These shared risks are not priced; thus, market mechanisms to account for them usually do not exist.
One of the most well-known examples of risk transfer or sharing is through greenhouse gas emissions. Anthropogenic climate change may exacerbate weather-related hazards in other regions and thus lead to increased disaster losses. However, these costs are not borne by the emitter. Small island developing states (SIDS), for example, are responsible for less than 1 percent of total global greenhouse gas emissions but are likely to suffer disproportionately from the effects of sea-level rise or risks associated with storm surges and coastal flooding.
But climate change is only one mechanism through which risk is shared. For example, new road and real estate developments in urban areas may decrease the capacity of water management systems and soils to absorb excess water during storms in a city. New urban development may therefore produce flood risks, which are then shared with low-income households located in the most flood-prone areas and who would experience the greatest losses. City governments would also lose, as they would have to invest in drainage infrastructure. Box 2.2 highlights how, during the Chao Phraya floods in Thailand in 2011, a transfer of risks to low-income households took place.
Other mechanisms of risk sharing include when business investments contribute to a depletion of regulatory or productive ecosystem services—for example, when mangroves are destroyed for shrimp farms; when groundwater resources are overexploited for commercial agriculture or recreational
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