UN report says that disaster risk is “new multi-trillion dollar class of toxic assets”

Thai floods

The UN says economic losses linked to disasters are “out of control” and will continue to escalate unless disaster risk management becomes a core part of business investment strategies.

“We have carried out a thorough review of disaster losses at national level and it is clear that direct losses from floods, earthquakes and drought have been under-estimated by at least 50%,” said UN secretary-general Ban Ki-moon. “So far this century, direct losses from disasters are in the range of $2.5trn.

“Economic losses from disasters are out of control and can only be reduced in partnership with the private sector, which is responsible for 70% to 85% of all investment worldwide in new buildings, industry and small-to-medium-sized enterprises. The principles of disaster risk reduction must be taught at business schools and become part of the investor’s mind-set.”

The UN secretary-general was speaking at the launch of a new report from the UN Office for Disaster Risk Reduction (UNISDR).

A new global risk model developed by UNISDR and partners, demonstrates that annual average losses from just earthquakes and cyclonic winds can be expected to be in the range of $180bn this century.

The report makes a strong case that globalisation, the search for lower costs, higher productivity, and just-in-time delivery are driving business into hazard-prone locations with little or no consideration of the consequences on global supply chains.

“In a world of ongoing population growth, rapid urbanisation, climate change and an approach to investment that continually discounts disaster risk, this increased potential for future losses is of major concern,” said UNISDR chief Margareta Wahlström.

“In the wake of the global financial crisis, disaster risk stands as a new multi-trillion dollar class of toxic assets of unrealised liabilities. The catastrophic economic losses from the Japan earthquake/tsunami, floods in Thailand and the destructive Superstorm Sandy show clearly the extent of what is at stake.”

The UNISDR teamed with PwC to conduct some of the research and analysis for the report. PwC partner and the firm’s global leader for the UNISDR initiative Oz Ozturk said: “It is clear from our discussions that senior executives are increasingly aware of the vulnerability of their businesses to disasters and are beginning to prioritise the strengthening of their risk management.”

The report also identifies encouraging signs of change. Public-private partnerships in risk management have proven their worth during several disasters, including the 2010 and 2011 earthquakes in Christchurch, New Zealand.