Natural disasters cost corporations $400 billion in 2011, UN says

Value Chains

Natural disasters cost corporations $400 billion in 2011, UN says

Victims struggle to cope in the wake of natural disaster

Environmental disasters not only cripple smallholder farmers, they also mean high costs for the corporations at the buying end of the supply chain. A forthcoming UN report will show just how detrimental those costs can be.

The UN is calling on the private sector to take initiative on disaster risk reductions to better protect people in the global South. This May will mark the third release of the UN Global Assessment Report on Disaster Risk Reduction (GAR13). While the first GAR, released in 2009, broadly outlined risks and economic losses due to climate change, the second GAR, released in 2011, was much more specific, incorporating the Hyogo Framework of Action and providing guidance to governments and non-governmental organizations on how they might bridge the gap to become partners in responding to environmental disasters and offsetting crises. The third GAR will be featured at the Global Platform for Disaster Risk Reduction taking place in Geneva from May 21 to May 23. The purpose of this report is to shift attention to the private sector.

"GAR13 will have a profound effect on how disaster risk is managed by major corporations and small- and medium-sized enterprises in the future," predicts UN Office for Disaster Risk Reduction (UNISDR) Chief Margareta Wahlstrom. "We are looking to achieve a paradigm shift from simple business planning in the same way as cyber security or financial audits."

According to Andrew Maskrey, UNISDR's head of risk knowledge, past research has underestimated direct monetary losses from disasters. More importantly, indirect losses to companies can be even more significant than direct losses. In the last 12 years, overall economic losses from natural disasters have reached approximately $1.5 trillion. In 2011 alone, losses were reported at $400 billion. 

In the wake of a natural disaster, corporations often withdraw from a developing nation and are slow to come back, sometimes simply abandoning the region. This hurts locals whose livelihoods are either dependent on working in a factory or providing raw inputs for domestic processing, as in the agricultural sector. If the GAR13 encourages businesses to become more risk-resilient and establish effective disaster risk procedures for their own corporations and the communities they work in and employ, there's a better chance they'll stay and all will be better off. Reallocating anticipated post-disaster costs on pre-disaster resiliency measures could save corporations a big chunk of cash: GAR13 puts just how much into perspective. 

The new report will feature national disaster loss data from 56 countries and estimates of annual average loss costs for earthquakes and cyclones. This report has already received feedback from 61 independent reviewers from around the globe. For corporations, planning for disaster risk reduction will not only help to protect the smallholder farmers and low-wage workers they interact with, but will also strengthen the longevity of their business.

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