Disaster events don’t wait for an invitation. Real world property damage and related costs have led to an increasing awareness of climate risk in Asia-Pacific. As economic recovery takes the forefront, it is vital that businesses continue to protect themselves from the ever-present risk of natural catastrophes.
While Asia-Pacific business leaders recognize the need to address the adverse financial impacts of climate risk, there remains work to do, according to a recent survey of several hundred CEOs and chief financial officers of the world’s largest companies by global property insurance leader, FM Global.
The survey, conducted pre-pandemic, found that at least 34% of Asia-Pacific executives believe their organization is significantly exposed to climate risk, and 57% of Asia-Pacific respondents said addressing climate risk was a high priority in their company. In this respect, Asia-Pacific-based companies scored higher than their peers in Europe and the U.S.
The higher level of awareness and preparedness in Asia-Pacific is unsurprising given the increasing number of climate-related catastrophes in the region since 2018, where bush fires, typhoons, floods and droughts have wreaked financial havoc.
Business leaders are right to be concerned. Asia-Pacific’s evolving riskscape is becoming more complex with each year. In 2018, almost half of the 281 natural disasters worldwide occurred in the Asia-Pacific region, including eight out of the 10 deadliest. Indonesia alone was struck by two tsunamis and one earthquake in quick succession while Japan, perhaps the most disaster-prepared country globally, experienced unprecedented flooding, followed by an anomalous heatwave.
Today, the Covid-19 pandemic threatens to exacerbate the impact of natural catastrophes. While not directly impacting property and infrastructure as do earthquakes, floods or wind events, the pandemic has the potential to compound the impact of climate risks due to the restrictions on movement and essential services.
The good news is that there is a clear shift in thinking toward increasing focus on loss prevention strategies to mitigate potential climate risk to property and infrastructure. The survey found that business leaders predict an increase in their responsibilities, with most agreeing that executive management will be accountable for adverse financial impacts on their business due to climate events.
The challenge facing Asia-Pacific’s business leaders is to retain this focus during the Covid-19 recovery period, when bottom lines are strained. To stay the course, there are four steps that business leaders can take in this evolving riskscape: increase capital allocation, enhance disaster recovery and business continuity plans, invest in property loss prevention measures, and reassess their supply chain risk management strategy.
Companies should allocate more capital to reduce the financial risk related to potential natural disasters, and have the ability to factor in uninsured costs to avoid volatile balance sheets. Based on FM Global data, for every US$1 spent to protect structures from wind- and flood-related damages, the estimated property loss and disruption exposures decrease by an average of US$105. It follows that businesses that take this path tend to produce a significant return on investment.
- This article is a special promotional feature originally published in the September 2020 Issue of Forbes Asia