A new report by the UN International Strategy for Disaster Reduction (UNISDR) and PwC warns large multinationals’ dependencies on international supply chains, infrastructure and markets poses a systemic risk to ‘business as usual’.

Last week, UN Secretary General Ban Ki Moon described economic losses from disasters as “out of control”, after a separate report was released (GAR13) showed mounting losses this century from catastrophic events topping US$2.5 trillion. Direct losses from floods, earthquakes and drought were reported as under-estimated by at least 50%. Disaster risk was described in the GAR13 as ‘a new multi-trillion dollar asset class’.

The UNISDR/PwC report Working together to reduce disaster risk examined disaster risk management approaches and experiences in 14 global businesses, including Nestlé, Walmart, General Electric, Citigroup and BG Group. It was launched to mark a new initiative led by UNISDR and PwC to link private sector businesses of all sizes with all the other stakeholders in disaster planning.

Businesses taking part in the report undertook a pilot assessment of their risk management activities which showed that while good practices existed for disaster risk reduction for corporate-owned assets, the level of understanding and ability to manage risks within local and extended supply chains was far lower.

The private sector has witnessed increasing numbers of occasions of indirect impacts of natural disasters amplifying losses globally through commodity price rises, supply chain disruption, workforce dislocation, asset damage, and lost or damaged infrastructure.

The report highlights how even businesses with established risk management systems in place need to do more to protect themselves fully against natural disasters. It covers how small more vulnerable enterprises in developing economies and do not have the capacity to strengthen their risk management and overall supply chain resilience alone.

Global businesses, the report suggests, should consider shared risks with suppliers, SMEs and local businesses in their supply chain, particularly in developing and emerging economies, where disproportionate economic and human impacts of disasters are being felt. It also stresses how few global corporations collaborate actively with governments across countries in which they operate.

The report also points out that some large businesses rely on the insurance industry alone for risk assessments, with most having only limited access to disaster risk information on which to base investment decisions.

Commenting on the report, Dr. Paul Robertson, director, PwC business continuity and risk management, explains: “Disaster does not stop at the factory gate. Damage to the infrastructure, utilities, transport infrastructure or the neighbourhoods where employees live, interrupts business and imposes additional costs. In global supply chains, even businesses in safe locations may be affected by disasters that hit suppliers and partners on the other side of the globe.”

“Getting businesses to work with local communities, public sector organisations and local authorities addresses disaster risk in a way that can benefit all more powerfully than if these groups worked in isolation. Notably each group has resources and capabilities that others do not. Getting all of these harnessed to common goals will lead to more effective disaster risk reduction particularly in developing and emerging economies.”

The new PwC led UNISDR initiative, facilitates the involvement of private and public sector organisations of all sizes and in all sectors, to take steps on disaster risk reduction, offering an assessment tool to help companies identify where their companies’ plans stand, and where gaps exist in the management of disaster risk.

“The businesses we interviewed understand they need to do more than just do business in the communities they are working in. All businesses exist in a local, regional and global context with a wide variety of stakeholders. Businesses, working together with these stakeholders will have a more powerful capability in preventing, responding and recovering from disaster risks,” Dr Robertson suggests. “Collaborating on disaster risk management is a strong platform on which to create local partnership with governments and cities, and demonstrates that business is having a full and positive impact on society.”

Margareta Wahlstrom, UN Special Representative of the Secretary-General for Disaster Risk Reduction, adds,”While many private sector players are demonstrating an improved understanding of how their operations could be affected by natural hazards, there is a huge need for businesses worldwide to play a more central role in reducing disaster risk. The economic losses speak for themselves.

“The other side of the equation is that disaster risk management is a business opportunity. For example, the development of new crop insurance products or more disaster resilient infrastructure are major emerging needs in response to extreme weather events, rapid urbanization and growing exposure to disaster risk.

“This is ultimately about improving safety for all, and the security of supply chains and economic growth, and this initiative will provide a common platform for understanding disaster risk management in the private sector across businesses of all sizes, in any industry or sector.”

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