GAR 2015 Main Report

252

Chapter 13

be achieved. Investing in disaster risk reduction is thus a precondition for developing sustainably in a changing climate. However, it is a precondition that can be achieved and that makes good financial sense.

If risk is not reduced, these expected future losses will become a critical opportunity cost for development. In particular, in those countries where disaster risk now represents a significant proportion of capital investment and social expenditure, the capacity for future development will be seriously undermined. In such circumstances, sustained, let alone sustainable, development will be difficult.

It is currently estimated that US$90 trillion will have to be invested in infrastructure (urban, land-use and energy systems) by 2030 (Global Commission on the Economy and Climate, 2014

Global Commission on the Economy and Climate. 2014,Better Growth, Better Climate: The New Climate Economy Report, Washington, D.C.: World Resources Institute.. .

). This amounts to an average of US$6 trillion per year over the next 15 years. Additional investment for a transition to low-carbon infrastructure is estimated at around US$4 trillion in total or another US$270 billion per year (ibid.). If these investments are not made in a risk-sensitive way, the global AAL will continue to increase, even without taking into account likely increases in hazard due to climate change and other factors. In many countries this increase in risk could make the difference between achieving sustainable development or not.

Benefit-cost ratios (BCRs) of disaster risk reduction can only be assessed within specific local contexts and for specific disaster risk management strategies (Shreve and Kelman, 2014

Shreve, C.M. and I. Kelman. 2014,Does mitigation save? Reviewing cost-benefit analyses of disaster risk reduction, International Journal of Disaster Risk Reduction, Vol. 10, Part A (December): 213-235.. .

), and as such there is no single magic number. In the case of corrective disaster risk management, the costs may exceed the purely economic benefits (UNISDR, 2011a

UNISDR. 2011a,Global Assessment Report on Disaster Risk Reduction: Revealing Risk, Redefining Development, Geneva, Switzerland: UNISDR.. .

; Kunreuther and Michel-Kerjan, 2012

Kunreuther, H. and E. Michel-Kerjan. 2012,Policy Options for Reducing Losses from Natural Disasters: Allocating $75 billion, Challenge Paper: Natural Disasters. Copenhagen Consensus 2012.. .

). However, in countries with a high proportion of their current capital stock at risk and low levels of new investment, corrective disaster risk management becomes very important. And if the

indirect benefits of reducing risks are factored in, the BCR of corrective investments may be more attractive.

Typical BCRs for prospective disaster risk management would seem to lie in a range from 3:1 to 15:1 (Shreve and Kelman, 2014

) and a broadbased estimate of 4:1 has been suggested (Mechler et al., 2014; Government of the United Kingdom, 2012

Government of the United Kingdom. 2012,Reducing Risks of Future Disasters: Priorities for Decision Makers, Final Project Report. Government Office for Science and Foresight. London.. .

) in order to give an order of magnitude of the potential benefits of making future investments in a risk-sensitive manner.2

If this BCR is applied to the likely new investments in infrastructure, this would imply that an annual global investment of only US$6 billion in disaster risk reduction over the next 15 years3 would result in total benefits of US$360 billion in terms of avoided losses over the whole lifetime of the investment (for example, 50 years for infrastructure).4 This amounts to an annual reduction of new and additional AAL by more than 20 per cent. Such substantial reduction in expected losses comes at a comparably low cost when put in relation to current flows into climate change mitigation or future investment requirements for power, telecommunications and transport infrastructure (UNCTAD, 2014

UNCTAD (United Nations Conference on Trade and Development). 2014,World Investment Report 2014 - Investing in the SDG’s: An Action Plan, Printed in Switzerland.. .

Given that the BCR ratios and discount rates applied to specific investments will vary widely, the above figure only indicates the likely order of magnitude of the required investment. However, given that new infrastructure investments gradually replace existing vulnerable infrastructure, this level of investment would not only protect new development: the global AAL would gradually be reduced. This highlights that disaster risk reduction is not only essential to sustainable development, it is also a sound investment.

	252 Chapter 13 be achieved. Investing in disaster risk reduction is thus a precondition for developing sustainably in a changing climate. However, it is a precondition that can be achieved and that makes good financial sense. If risk is not reduced, these expected future losses will become a critical opportunity cost for development. In particular, in those countries where disaster risk now represents a significant proportion of capital investment and social expenditure, the capacity for future development will be seriously undermined. In such circumstances, sustained, let alone sustainable, development will be difficult. It is currently estimated that US$90 trillion will have to be invested in infrastructure (urban, land-use and energy systems) by 2030 (Global Commission on the Economy and Climate, 2014 x Global Commission on the Economy and Climate. 2014,Better Growth, Better Climate: The New Climate Economy Report, Washington, D.C.: World Resources Institute.. . ). This amounts to an average of US$6 trillion per year over the next 15 years. Additional investment for a transition to low-carbon infrastructure is estimated at around US$4 trillion in total or another US$270 billion per year (ibid.). If these investments are not made in a risk-sensitive way, the global AAL will continue to increase, even without taking into account likely increases in hazard due to climate change and other factors. In many countries this increase in risk could make the difference between achieving sustainable development or not. Benefit-cost ratios (BCRs) of disaster risk reduction can only be assessed within specific local contexts and for specific disaster risk management strategies (Shreve and Kelman, 2014 x Shreve, C.M. and I. Kelman. 2014,Does mitigation save? Reviewing cost-benefit analyses of disaster risk reduction, International Journal of Disaster Risk Reduction, Vol. 10, Part A (December): 213-235.. . ), and as such there is no single magic number. In the case of corrective disaster risk management, the costs may exceed the purely economic benefits (UNISDR, 2011a x UNISDR. 2011a,Global Assessment Report on Disaster Risk Reduction: Revealing Risk, Redefining Development, Geneva, Switzerland: UNISDR.. . ; Kunreuther and Michel-Kerjan, 2012 x Kunreuther, H. and E. Michel-Kerjan. 2012,Policy Options for Reducing Losses from Natural Disasters: Allocating $75 billion, Challenge Paper: Natural Disasters. Copenhagen Consensus 2012.. . ). However, in countries with a high proportion of their current capital stock at risk and low levels of new investment, corrective disaster risk management becomes very important. And if the indirect benefits of reducing risks are factored in, the BCR of corrective investments may be more attractive. Typical BCRs for prospective disaster risk management would seem to lie in a range from 3:1 to 15:1 (Shreve and Kelman, 2014 x Shreve, C.M. and I. Kelman. 2014,Does mitigation save? Reviewing cost-benefit analyses of disaster risk reduction, International Journal of Disaster Risk Reduction, Vol. 10, Part A (December): 213-235.. . ) and a broadbased estimate of 4:1 has been suggested (Mechler et al., 2014; Government of the United Kingdom, 2012 x Government of the United Kingdom. 2012,Reducing Risks of Future Disasters: Priorities for Decision Makers, Final Project Report. Government Office for Science and Foresight. London.. . ) in order to give an order of magnitude of the potential benefits of making future investments in a risk-sensitive manner.2 If this BCR is applied to the likely new investments in infrastructure, this would imply that an annual global investment of only US$6 billion in disaster risk reduction over the next 15 years3 would result in total benefits of US$360 billion in terms of avoided losses over the whole lifetime of the investment (for example, 50 years for infrastructure).4 This amounts to an annual reduction of new and additional AAL by more than 20 per cent. Such substantial reduction in expected losses comes at a comparably low cost when put in relation to current flows into climate change mitigation or future investment requirements for power, telecommunications and transport infrastructure (UNCTAD, 2014 x UNCTAD (United Nations Conference on Trade and Development). 2014,World Investment Report 2014 - Investing in the SDG’s: An Action Plan, Printed in Switzerland.. . ). Given that the BCR ratios and discount rates applied to specific investments will vary widely, the above figure only indicates the likely order of magnitude of the required investment. However, given that new infrastructure investments gradually replace existing vulnerable infrastructure, this level of investment would not only protect new development: the global AAL would gradually be reduced. This highlights that disaster risk reduction is not only essential to sustainable development, it is also a sound investment.	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