Mastering disaster

07 July 2011

Companies should go beyond responding with cash and materials when catastrophes strike, and plan to be more resilient in an increasingly disaster-prone world, writes Stephen Gardner. There are few certainties when it comes to natural disasters. Imminent catastrophe sometimes offers advance signals, and early-warning systems are becoming more sophisticated, but earthquakes and extreme weather remain largely unpredictable. Nevertheless companies and the rest of society must think more about natural disasters because of two clear trends. First, disasters are happening more frequently, and second, when they do occur, they have ever greater impacts and costs. "The number of natural disasters has definitely increased in the last thirty to forty years," says Professor Debarati Guha-Sapir, director of the Centre for Research on the Epidemiology of Disasters (CRED) at the Université catholique de Louvain in Belgium. CRED maintains a global database covering a century of catastrophe, and has separated out from the figures the influence of better reporting and recording over time. The CRED database shows that during the 1990s there were 2,975 weather- and geology-related disasters, the deadliest of which was Hurricane Gorky, which killed nearly 140,000 people in Bangladesh in 1991. Between 2000-2009, the number of disasters was substantially higher, at 4,499, some of which exacted an extraordinary human toll. Just five major events caused nearly three-quarters of a million deaths: the 2004 Boxing Day tsunami in Asia, the 2005 Pakistan earthquake, the Sichuan earthquake and cyclone Nargis, both in May 2008, and the Haiti earthquake of January 2010. The increase in the incidence of disasters is down to climatological phenomena. Floods, storms and droughts are "increasing very substantially," says Professor Guha-Sapir. There is no evidence of a rise in the number of earthquakes or volcanic eruptions. However the costs of all types of disaster are skyrocketing. Reinsurers Swiss Re publish an annual review of the financial impact of natural events. The latest, published in late March, found that catastrophes claimed nearly 304,000 victims and cost insurers $43 billion during 2010. In fact, 2010 was a record year for the number of disasters, though in financial terms, the amount paid out by insurers was far less than in 2005, when Hurricane Katrina hit New Orleans. The financial impact of disasters is going up because of increasing populations, and because of the growing wealth of societies, particularly in Asia. "The costs of earthquakes are increasing many times. Economic damage reflects directly the value of land," says Professor Guha-Sapir. Rescue and relief The greater and more severe incidence of disasters poses many questions for companies, especially multinationals operating in more susceptible areas, such as Asia or Africa. In the immediate aftermath of catastrophes, many companies want to know how best to contribute to the relief effort. In the longer term, companies have a role in helping disaster-hit communities get back on their feet. The International Business Leaders Forum (IBLF) has done much to raise awareness of how companies can respond. The 2004 Asian tsunami spurred corporate efforts. It "somehow really started to bring home to businesses that they must be more strategic" in disaster response, says the IBLF's Asia Pacific Director, Peter Brew. The tsunami posed hugely complex relief challenges, because it affected different countries over a wide area, including some very isolated areas. It also, according to an IBLF report reviewing the lessons of the disaster, "gained unprecedented levels of publicity as well as record-breaking levels of donations from the international community, governments, business and the public. But with this high profile came a greater interest in the effectiveness of relief and recovery initiatives". In the tsunami's aftermath, a more intensive dialogue between corporations and the United Nations began, Brew says. This led, for example, to the UN Office for the Coordination of Humanitarian Affairs using IBLF guidelines as the basis for its recommendations to companies on how best to respond when catastrophe strikes. The guidelines state that companies should plan for three phases of disaster response: immediate rescue, relief, and recovery in the long-term. In the first two phases in particular "some companies because of the nature of their goods and services have a crucial role to play," says Brew. Examples of these include the pharmaceuticals giants Abbott, Pfizer and GlaxoSmithKline. They have "shown they are able and willing to respond," with Pfizer, for example, seconding employees to relief agencies to assemble inventories of medicines and work out what is needed, Brew says. BP, meanwhile, provided solar lanterns to Sri Lanka and India after the 2004 tsunami, and DHL, according to Brew, has an "outstanding record of providing charter flights to get people and goods into the right places". Other firms contribute by donating or collecting money. Brew cites Starbucks as an example of a company that converted its tips boxes into collection boxes. In the United States when Hurricane Katrina struck, Wal-Mart's response earned plaudits and boosted the company's reputation. The retail giant's use of its trucks to efficiently deliver food and emergency supplies into the disaster area contrasted with the hamfisted response of the federal and state governments. Wal-Mart also provided $20 million in cash for the relief effort. By contrast, disasters can also mean reputational risk, as shown by cruise operator Royal Caribbean International, whose ships continued to ferry tourists to a luxury resort in the north of Haiti while the south suffered the devastating impact of the January 2010 earthquake. In its defence, the company said it was supporting the Haitian economy and was delivering relief supplies. It also noted that the Haitian government had asked it to continue supplying wealthy tourists. Planning and partnership Corporate disaster relief has two essential foundations: planning and partnership. Anthony Dunnett, president of International Health Partners (IHP), which coordinates supplies of medicines to disaster-hit areas, says that the "fastest responding and most effective" companies are those that have thought about it in advance. The main indicator of this is if firms have corporate responsibility policies that are taken seriously at board level, Dunnett adds. IHP's experience is that corporate contributions to disaster relief are "down to policy and the interest and personal motivation" of individuals in relevant positions. The motivation to contribute to disaster relief can even transfer from one company to another when a key executive switches jobs. Planning can also help ensure that obstacles are avoided. There have been cases of companies wanting to respond, but being unable to unlock medical supplies stocked elsewhere in the world because of bureaucratic barriers, Dunnett says. These barriers should be broken down. A common thread in advice to companies on disaster relief is that they should never try to go it alone. The IBLF's Peter Brew says that companies might be able to get information about what is required from their people on the ground in a disaster zone, but relief should always be channelled through agencies that know what they are doing. "Companies need to reach out," he says. "Smart relief agencies can coordinate what companies bring to the table". This should mean help does not become a hindrance, for example, by inappropriate supplies being delivered, or useful supplies being sent to the wrong place. In the US, the Business Civic Leadership Center (BCLC) of the US Chamber of Commerce plays an interface role between companies and relief agencies. Stephen Jordan, BCLC's Executive Director, says the role is midway between "a dating service and a trouble-shooting service". In the aftermath of a disaster, the BCLC rolls out a well-rehearsed procedure. It convenes a conference call so that relief agencies can state what they need, and companies can match it with their contributions. The response can be remarkable. After the Japan earthquake and tsunami on March 11, 250 companies phoned in to the first conference call, even though BCLC only gave three hours notice. The BCLC conference calls continue as the immediate rescue and relief phases of a disaster turn into recovery. There is a cost incentive to get to the recovery phase as quickly as feasible. "Relief can rack up bills really fast; that's not sustainable," says Jordan. Relief agencies want to meet humanitarian needs, but not run down resources so much that recovery grinds to a halt. When it comes to recovery, companies can contribute in different ways from supplying money and vital supplies. More long-term support for communities and their corporate sectors becomes important. Jordan gives several examples of practical assistance provided by companies to their peers affected by Hurricane Katrina. The insurance giant AIG donated its old office equipment to local firms, "a massive gift for small businesses who had to replace all of their office furnishings". IBM donated laptops, which BCLC channelled through chambers of commerce in Louisiana. There were "utilities helping utilities, telcos helping telcos, and other infrastructures helping each other out. We even had national coffee chains offering to help out local coffee stores," Jordan says. Building resilience However, despite the lessons that have been learned since the 2004 Asian tsunami, "we have to change the way we approach disaster response," says Jordan. "We have never had a situation with such a huge population and a huge built environment. The impetus now is resilience and sustainability". Corporate thinking about natural disasters has to go beyond rescue, relief and recovery. It must consider the broader systemic threats to economies posed by the rising rate of natural disasters, and their ever-more deadly and expensive impacts on crowded cities and coastlines. Companies can learn from both the private and public sectors in nations such as Chile, which is earthquake prone but has "really invested in better design," Jordan says. On 27 February 2010, not long after the massive Haitian earthquake, Chile was hit by a magnitude 8.8 tremor (the Haitian quake was magnitude 7.0). Damage was immense, estimated at $30 billion according to the CRED database. But the human toll was relatively slight, with 562 identified fatalities. The contrast with Haiti, which killed so many, was stark. Building resilience will be an expensive, long-term proposition, though arguably also an opportunity for companies that can, for example, provide better designed and constructed buildings. CRED's Professor Guha-Sapir notes that "many of the highly seismic zones are rapidly-growing urban centres," giving the examples of Mexico and Turkey, where there are "very old towns that are now big cities". No one knows where the next big disaster will strike, but companies and the rest of society must do more to be prepared. A version of this article was published in Ethical Corporation magazine.

 

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