Finance ministries are key in disaster risk reduction. From left: Adriano Afonso Maleiane, Minister of Economy and Finance of Mozambique; Margareta Wahlström, Special Representative of the UN Secretary-General for Disaster Risk Reduction; Fernando Aportela, Under-Secretary at Mexico’s Ministry of Finance (Photo: UNISDR)
By Jonathan Fowler
Addis Ababa, 15 July 2015 – Breaking down the barriers between financial decision-makers and the development sector and rethinking how risk is reflected by the markets are crucial to tackle the threat of disasters, delegates at a high-level international conference said today.
“Disaster risk reduction is not just a technical issue. It’s genuinely cross-sector,” said Margareta Wahlström, Special Representative of the UN Secretary-General for Disaster Risk Reduction, at the Third International Conference on Financing for Development.
“We really want to see ministers of finance in the lead of understanding risk,” Ms. Wahlström told participants at a session on disaster-resilient investments and sustainable development organized by her office, UNISDR.
Despite a gradual shift over the past two decades from treating disasters as a matter of relief operations to confronting risk head on, economic losses have risen steadily, exacerbated by climate change, unbalanced urbanization and growing inequalities.
In failing to adequately understand and reduce current risk, as well as prevent the creation of new risk, public and private investment decisions have fuelled this accelerating trend.
The Sendai Framework for Disaster Risk Reduction, a 15-year global roadmap adopted by the international community in March, views disasters through the lens of growth and sustainable development and calls for risk-informed development.
Governments have woken up to the fact that reducing disaster risk is an investment in their countries’ future, said Adriano Afonso Maleiane, Minister of Economy and Finance of Mozambique, one of the most flood-prone nations in Africa.
“We want not just to prevent, we want to be sure that what we’re doing tomorrow will be sustainable,” he said.
Fernando Aportela, Under-Secretary at Mexico’s Ministry of Finance, said the story was similar in his country, which he underlined had long tackled earthquake risk but was still coming to terms with climate threats.
Economic losses from disasters such as earthquakes, tsunamis, cyclones and flooding are now averaging US$250 billion to US$300 billion each year, according to UNISDR’s 2015 Global Assessment Report.
While countries face a financing gap due to inadequate resources to act as a buffer against infrequent but severe disaster losses, it is also clear that those with the greatest need for investment in social development are those most challenged by disaster risk.
The growing level of investment, including from the private sector, indicates that large volumes of capital continue to flow into hazard-prone areas, leading to significant increases in the value of exposed economic assets.
Mainstream capital management practices do not adequately take into account natural hazards as a requirement of sound finance and stability. In such circumstances, resilience to current and future risks is impaired, fundamentally challenging efforts to make development sustainable.
“We need to embed disaster risk reduction into FDI,” said Fatima Denton, Coordinator of the African Climate Policy Centre at the UN Economic Commission for Africa.
An annual global investment of US$6 billion in appropriate disaster risk management strategies could generate benefits of US$360 billion in risk reduction.
One key risk driver is the perception that the authorities will always pick up the bill.
“Over the past 50 years, we’ve gone from a perception that governments will pay for nothing to the idea that they will pay for everything,” said Ms. Wahlström.
Widening the net of insurance is one solution – provided that having coverage does not simply encourage people, companies and institutions to brush off risk, and that costs reflect the real extent of that risk.
The insurance sector needs to find ways to cover the needs of excluded groups, said Sabbir Patel, Senior Vice-President of Emerging Markets at the International Cooperative and Mutual Insurance Federation.
“We believe that micro-insurance is an effective tool for protecting the assets of the poor. It also creates a culture of understanding risk. It provides a cushion against the smaller shocks and enables a share-out of the cost of the larger shocks,” he said.
Data is also vital to make the right decisions, with innovative, transparent methods needed to gather it.
Professor Peter Head, Founder and Chief Executive Officer of the Ecological Sequestration Trust, set out details of “resilience.io”, an open-source platform which aims to help inform decision-making by gathering satellite observation, open government and crowd-sourced economic, social and environmental data together in one place, in an understandable format.
“You have to link up with the economics of human well-being, not just the economics of GDP growth,” he said.