Economic losses from disasters since 2000 are in the range of $2.5 trillion, a figure at least 50 percent higher than previous international estimates, according to a U.N. report.
The U.N. Office for Disaster Risk Reduction warned in the 246-page report that economic losses from floods, earthquakes and drought will continue to escalate unless businesses take action to reduce their exposure to disaster risks.
U.N. Secretary-General Ban Ki-moon launched the report saying the review of disaster losses in 56 countries clearly demonstrates that “economic losses from disasters are out of control” and can only be reduced in partnership with the private sector.
“Our startling finding is that direct losses from floods, earthquakes and drought have been underestimated by at least 50 percent,” Ban said. “So far this century, direct losses from disasters are in the range of $2.5 trillion. This is unacceptable when we have the knowledge to reduce the losses and benefit from the gains.”
For too many years, the secretary-general said, financial markets have placed greater value on short-term returns than on sustainability and resilience, which in the long-term are far more attractive and can save millions of dollars.
“In the years ahead, trillions of dollars will be invested in hazard-exposed regions,” Ban said. “If that money fails to account for natural hazards and vulnerabilities, risk will increase. Where such spending does address underlying risk factors, risk will go down.”
The report said recent major disasters such as Hurricane Sandy in 2012, the 2011 floods in Thailand and the 2011 Japanese earthquake and tsunami put a spotlight on the growing impact of disasters on the private sector.
The report says increasing globalization, the search for lower costs and higher productivity, and quick delivery “are driving business into hazard-prone locations with little or no consideration of the consequences on global supply chains.”
For example, it said Toyota lost $1.2 billion in product revenue from the Japanese quake due to parts shortages that caused 150,000 fewer cars to be manufactured in the United States and a 70 percent reduction in production in India and a 50 percent reduction in China.
On the other hand, Orion, which owns and operates one of the largest electricity distribution networks in New Zealand, invested $6 million in seismic protection that saved the company $65 million in the 2010 and 2011 earthquakes, the report said. And preventive investments by fishermen in Mexico saved each individual entrepreneur US$35,000 during Hurricane Wilma in 2005, it said.
But Margareta Wahlstrom, the U.N. special representative for disaster risk reduction, said: “In a world of ongoing population growth, rapid urbanization, climate change and an approach to investment that continually discounts disaster risk, this increased potential for future losses is of major concern.”
A new global risk model developed by the U.N. office demonstrates that average losses just from earthquake and cyclonic wind damage are expected to be about $180 billion per year throughout this century—and this figure doesn’t include damage from floods, landslides, fires and storms, the report said.