Disaster risk management vital for private sector

Panel members at the private sector and risk management session at the East African Humanitarian Summit: (from left to right) Mr. Joseph Wanyingi, Ms. Tauhida Gitau, Mr. Animesh Kumar and Mr. Isaac Ng'aru (Photo: UNISDR)
By Animesh Kumar

NAIROBI, 15 April 2016 - Trillions of dollars of new investment are expected to pour into in hazard-prone areas by 2030, dramatically increasing the global value of assets at risk. Factoring that into capital investments, supply chains and operations will be decisive for business resilience and the success of the Sendai Framework for Disaster Risk Reduction.

The issue was spotlighted at the East African Humanitarian Summit 2016 in the Kenyan capital Nairobi, where the private sector and development and humanitarian organisations convened to explore linkages and potential partnerships between different sectors.

Participants acknowledged the tremendous growth in public-private partnerships, which tally with the Sendai Framework’s collaborative approach and combine the strengths of the different players in the interests of risk management.

Estimated at an average of US$314 billion, annual global losses in the built environment associated with tropical cyclones, earthquakes, tsunamis and floods would be even higher if the impact of extensive events, such as droughts, temperature variations and other sectors, such as agriculture, were included. East Africa is currently in the grip of one of the most serious droughts in decades.

At a UNISDR-moderated summit session on the private sector and risk management, participants heard that 70-80 percent of global investments are made by the private sector. In the last 10 years, US$1.3 trillion was lost due to disasters, demonstrating the fact that the private sector has absorbed a substantial portion of disaster losses. This, in turn, points to the need for the business community to increasingly incorporate risk management principles and practices to avoid potential losses.

The session revolved around risk management strategies: absorption, aversion, preparation and transfer. It underlined the role of risk management in increasing aid efficiency, given that every dollar spent on curbing risk brings an estimated saving of seven dollars that would otherwise have to be spent after a disaster.

The transport sector is particularly aware of the need to reduce risk.

Ms. Tauhida Gitau, Customer Service Manager at the Kenya Airports Authority, said that it has incorporated business continuity principles in light of a series of risks that the airports are exposed to such as fires and security threats. Nairobi’s Jomo Kenyatta International Airport is the busiest in eastern Africa, serving over 19,000 passengers per day.

Insurance, which is critical to business resilience and whose global value currently runs into trillions of dollars, makes strong business sense for disaster risk reduction.

Mr. Isaac Ng'aru from insurance consultancy Ng’aru & Associates highlighted success stories of insurance as a key mode of risk transfer, including livestock insurance, index-based crop insurance and other micro-insurance schemes. “Insurance is the business of risk management,” he said.

There are approximately 420–510 million small and medium-sized enterprises (SMEs) globally, of which 70–80 percent are informal and account for a substantial proportion of jobs worldwide.

Mr. Joseph Wanyingi from Transglobal Consultants Ltd. noted that these SMEs face a variety of existential risks, ranging from financial to operational, with up to two thirds of them being slow onset risks. The risks are weighed against a scale of impact and likelihood, enabling appropriate risk management strategies to be designed.

Participants emphasised the need for higher awareness of and regulations on risk management, as well as an acceptable risk threshold for enterprises for their business and business continuity. The irony of risk management is that despite its high cost effectiveness, investment in disaster risk measures is low, as it is difficult to show impact.

The Sendai Framework, a global agreement adopted in March last year to rein in disaster impacts by 2030, highlights a lack of regulation and incentives for private disaster risk reduction investment as an underlying risk driver and calls for business to integrate disaster risk into their management practices.

UNISDR, in partnership with a host of private sector entities, last November launched the Private Sector Alliance for Disaster Resilient Societies, also known as ARISE. Additionally, Connecting Business, a joint initiative between UNDP, OCHA and UNISDR, is set to be unveiled at the World Humanitarian Summit in Istanbul, Turkey, next month.

The Asian Ministerial Conference on Disaster Risk Reduction 2018, Ulaanbaatar, Mongolia 3-6 July 2018 The Asian Ministerial Conference on Disaster Risk Reduction 2018, Ulaanbaatar, Mongolia 3-6 July 2018.
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