Attachments
Executive summary
The COVID-19 pandemic was a stark reminder of what we stand to lose, collectively, by being ill-prepared for disasters. The huge losses incurred in the form of lives, jobs, economic output, years of education, developmental gains and the toll on the mental health of millions has underscored the importance of building resilience before a disaster strikes. The massive shock to economic activity experienced across the world during the pandemic reinforces the importance of building financial resilience, over and above physical resilience to any disaster. Globally, national governments swung into action, taking measures to control not just the spread of the pandemic, but also to contain the economic and financial fallout from the slowdown in economic activity, highlighting the responsibility of governments in disaster response. Additionally, countries where governments had invested in pandemic preparedness beforehand, reported lower infection rates and mortality numbers in the initial stages of the pandemic, underscoring the benefits of investing in resilience building. Below is a summary of the key findings that have emerged from our research.
Key findings
1. Underinvestment in disaster risk reduction prevails worldwide, despite the compelling case for resilience investments—every US$1 spent on disaster reduction saves US$4 to US$7 in disaster response.1 An ex-post analysis of selected disaster events in this report reveals that governments understandably prefer to allocate scarce funds to investments that generate immediate, tangible outcomes, rather than to risk reduction efforts whose gains are measured in events avoided. Even where here DRR investments do produce benefits in the form of damage avoided at the time of a disaster, those are likely to be overshadowed by the devastation that could not be stopped.
2. Political stability, strong governance and institutional strength are prerequisites for building disaster resilience. In our event analysis, marked differences were observed between countries in terms of the longterm financial consequences of disasters and their commitments towards resilience building. Those with strong institutions, stable political climate and credible financial management policies were able to mobilise post-disaster finance effectively and use those opportunities to undertake further measures for resilience building.
3. Coordination between stakeholders is crucial for risk reduction and resilience building. Disasters caused by extreme weather cannot always be predicted, but warning systems can be developed to warn of possible occurrences by analysing historical data. Some disaster events in our analysis could have been predicted, with the right combination of early warning systems, learnings from past occurrences and timely communication of warnings. For instance, in the case of the Sulawesi earthquake in Indonesia (2018), warning systems malfunctioned before the tsunami, which meant warnings could not be communicated in time, and in the case of the Chennai floods in India (2015), flood predictions based on historical patterns were not calculated and hence warnings could not be disseminated. This lack of coordination between stakeholders led to the huge losses experienced in Chennai and Sulawesi.
4. National focus on resilience building is still missing. The landscape for incorporating environmental and climate risk in the financial sector is expanding, even though a larger and conscious focus on resilience building continues to be missing. In most cases, there is no mandate for national banks to screen for resilience building in their channels, making compliance difficult to monitor. Mostly, the emphasis is on resolving near-term disasters rather than the far-off disasters caused either by natural hazards or climate change that could potentially have debilitating impacts.
5. Lending institutions can play an important role in shifting the focus of investments from ex-post to ex-ante. By nature of their lending activities, banks are often the primary source of credit required to fund economic activity. Banks and other lending institutions can leverage their lending activities to promote resilience building. Where it is implemented, a focus on evaluating disaster risks during project lending assessments helps prevent the worsening of existing risks and prevents the creation of new ones. Multilateral development banks (MDBs) are using embedded DRR in their lending channels as a means of promoting resilience building through development finance.
6. MDB investments in risk reduction and resilience building are often demand-driven. Risk reduction and resilience building are not a precondition for lending for all MDBs studied in this report. For MDBs that do not have an explicit DRR mandate, such investments are still based on demand, driven by individual needs expressed by member countries.
7. Resilience building is happening through environmental and social guidelines.* Banks—both multilateral and national— are using their environmental and climate risk assessment tools to evaluate existing vulnerabilities to prevent future disasters. Often these environmental and social guidelines take the form of climate adaptation and mitigation measures. While terminology differs among banks, the focus is on evaluating several disaster risks (natural-hazard-induced or human-induced) during project lending assessments and ensuring that environmental factors that could exacerbate existing risks, or create new risks, are eliminated.
8. DRR investments often overlap with climate finance among MDBs. There is no one-size-fits-all approach among MDBs. They are not using a uniform strategy to promote resilience-building through their lending channels. While the Asian Development Bank (ADB) has a stand-alone DRR funding mechanism, the World Bank uses its investment project financing (IPF) mechanism to promote resilience building. Among the other MDBs, climate adaptation and mitigation are important areas of operation, under which many projects are focused on disaster resilience. To avoid double-counting, some of these projects get labelled under the sustainability/climate change/environment category, where financing for disaster risk reduction activities is often being confused with finance for climate action.
9. Post-disaster recovery and reconstruction financing is an important tool to promote resilience building. The past decade has witnessed an increase in MDBs using their role as financiers of post-disaster recovery and reconstruction to promote ‘Build Back Better’. For instance, the World Bank-financed housing reconstruction in Nepal after the 2015 earthquake was directed at rebuilding affected houses with multi-hazard resistant core housing units in targeted areas. The project also involved technical assistance to educate homeowners about resilient construction methods. The project helped build capacity among engineers and masons and established a culture of resilient building practices.