INTERIM POLICY NOTEUNLOCKING THE ‘TRIPLE
DIVIDEND’ OF RESILIENCE

Why investing in disaster risk management pays off© 2015 Overseas Development Institute (ODI), International
Bank for Reconstruction and Development / International
Development Association or The World Bank.
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03

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ACKNOWLEDGMENTS
This policy briefing is an interim output of an
initiative funded by the Global Facility for Disaster
Reduction and Recovery (GFDRR) at the WorldBank and led by the Overseas Development
Institute (ODI).
The briefing was written by Thomas Tanner (ODI)
and Jun Rentschler (World Bank) (lead authors),
with inputs and review comments from Swenja
Surminski (LSE), Tom Mitchell (ODI), Reinhard
Mechler (IIASA), Emily Wilkinson (ODI), Katie
Peters (ODI), Rob Reid (World Bank), Carter
Brandon (World Bank), Stephane Hallegatte(World Bank) Adam Rose (University of Southern
California), Francis Vorhies (Earthmind), Javier
Baez (World Bank), Mook Bangalore (World Bank)and Prashant Singh (World Bank).
Design was by Steven Dickie. Copy-editing was by
Angela Hawke.

Introductionand economic co-benefits of disaster risk

However this perception is flawed. Even if a disasterdoes not occur for a long time, investing in DRM
yields real benefits in both the short and longterm. Reducing disaster-related ‘background risk’enables forward-looking planning, long-term capital
investments, and entrepreneurship. In addition, andregardless of whether a disaster hits or not, DRM
investments generate co-benefits as a result of the‘spill-over’ of social, economic and environmental
benefits arising from DRM investments themselves.
These benefits are in addition to the avoided loss

management investments even if a disaster does

and damage, when a disaster strikes. Put simply,

not happen for many years.

not investing in DRM is a missed opportunity for

The risk of a disaster can cause economic losses
even before a disaster strikes. Investing indisaster resilience, therefore, can yield a ‘triple
dividend’ by (1) avoiding losses when disasters
strike; (2) unlocking development potential bystimulating innovation and bolstering economic
activity in a context of reduced disaster-related
background risk for investment; and (3) throughthe synergies of the social, environment

The devastating effects of disasters are experienced
regularly and are widely documented: Lives are
lost, economies suffer, essential infrastructure isdestroyed, firms lose assets and markets, households
become trapped in poverty, and their welfare isseverely reduced with effects on education, healthand income.
These losses devastate communities and nations inthe short term, and impede development potential
in the long run. However, strong evidence alsosuggests that the mere possibility of a futuredisaster has real impacts on present-day decisions
and economic growth. Excessively risk-aversehouseholds and firms avoid long-term investments
in productive assets, entrepreneurship is restricted,
planning horizons are shortened – and development
opportunities are lost.

social, economic and environmental progress.

The post-2015 Hyogo Framework for Action provides
a platform for national governments to make jointcommitments to reduce risk, underpinned by atargeted commitment to invest, especially at a local
level. The DRM community now needs to scale
up efforts to communicate the many incentives
for investment in DRM and the integration of risk
concerns into development. Highlighting the triple
dividend of resilience can help play a central role in
the process.

Despite widespread awareness of these rising losses,
investment in ex-ante Disaster Risk Management(DRM) remain low. Part of the reason for thislies in the way in which decisions are made about
DRM investment. Short political mandates
induce policymakers to take a gamble and put off
investments to build resilience. As with investment
in voluntary insurance, resilience is perceived as a
‘sunk’ cost if disaster does not strike.

05

06
Glossary of key terms
Avoided losses

The immediate and long-run losses and damages(1st Dividend of Resilience)that disaster risk reduction measures can prevent in
the event of a disaster.

Background risk

The possibility of an extreme event (e.g. a disaster)that threatens the prospects of ongoing economic
activity. The presence of background risk restricts
long-term investments and economic growth, even
before a disaster occurs.

Co-benefits

Co-benefits of disaster risk management are any(3rd Dividend of Resilience)

benefits that accrue in addition to the primary
DRM objectives of avoiding losses and boostingdevelopment. Co-benefits can include economic,
social and environmental aspects, and be nonDRM specific.

Development dividend

The development potential that is unlocked when

(2nd Dividend of Resilience)

background risk is reduced through DRM measures.
This includes innovation, entrepreneurship, andinvestments, and is independent of the occurrence of
any actual disaster.

Disaster Risk Management (DRM)

The systematic process of using administrative
directives, organizations, and operational skills andcapacities to implement strategies, policies andimproved coping capacities in order to lessen theadverse impacts of hazards and the possibility ofdisaster.1

Resilience

The ability of a system, community or society
exposed to hazards to resist, absorb, accommodate
to and recover from the effects of a hazard in atimely and efficient manner, including through thepreservation and restoration of its essential basic
structures and functions.2

Risk

The combination of the probability of an event andits negative consequences.3

1. To invest in DRM and resilience is to secure growthand development

1.1. Disasters and poverty

The poverty impacts of disasters at the micro

Building resilience reduces the loss andmacro level, and erase previous gains and futuredamage caused by disasters

prospects for economic development and poverty

level often threaten socioeconomic stability at the

reduction.9 Macro-level impacts reflect the losses

The increasing frequency of devastating disasters

incurred by households, the private sector and theis a major obstacle to the reduction of poverty

state: the destruction or loss of assets, productive

and the promotion of shared prosperity. Theircapital and infrastructure can have a negative toll

adverse effects have been widely documented inon employment, economic activity and growth for

empirical research and are witnessed on an all

many years after the event.

too regular basis. What is particularly alarming isthat low-income developing countries are hit the

One increasing concern is the growing devastation

hardest, bearing the brunt of disasters in terms offrom disasters linked to climate change, which isfatalities and relative economic losses.4 It is theaffecting the frequency, intensity, spatial extent,

poorest people within these countries that are theduration, and timing of extreme climatic events.10

most vulnerable of all. This is not only the result

The total number of disaster events has beenof the immediate losses caused by a disaster, which

increasing since the 1980s, with most of this growthoften exceed their entire savings, but also because

stemming from the higher numbers of climate-of the long-term negative consequences for theirrelated events (Figure 1).11 This presents a particularincome and welfare.5 Damages to productive assets,challenge for poverty alleviation and economic

health and education in particular, can perpetuate

development as a high frequency of both large

poverty in the long run, sometimes even acrossscale and small-scale local disasters (e.g. because ofchanging precipitation patterns) reduces the time

generations.6, 7, 8

and resources available for post-disaster recovery.12

Figure 1: The number of disasters is growing, with a growing proportion of climate related events13

Trends in types of disaster event, 1980–2011
1,200
Flooding
Extremetemperatures,
droughts, forest fires

1,000
800

Storms

600
400

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

0

1982

200

1980

Earthquakes,
tsunamis, volcanic
eruptions07

08
But losses also occur before a disasterThe knowledge of the existing risk of a disaster, anunderstanding of one’s own vulnerability, exposureand hazard, and the experience of disasters in thepast – all of these factors affect the decisions madeby households, governments and firms, even before
a disaster strikes. There is strong evidence that themere possibility of a future disaster has real impacts
on present-day economic growth, particularly
in regions or localities where disaster risks areperceived to be high.14
Households fear that today’s investments intomorrow’s well-being could be wiped out by adisaster.15, 16 As a result, they refrain from engaging
in entrepreneurial activities or investing in
potentially revenue-generating assets, and theyminimise their savings. The same applies in theprivate sector, as firms shy away from planningand investing for the long term. As a result ofThis policy note argues that investments in
Disaster Risk Management (DRM) can reducethese ‘pre-disaster’ losses and unlock significant
development potential in vulnerable areas bygenerating a dividend even if no disasters strike
for a long time. As well as reducing backgrounddisaster risks to stimulate economic activity, theDRM actions themselves may generate social,economic and environmental co-benefits thataren’t factored into today’s decision-making onwhether to invest in DRM.

1.2. Investments in DRM:
the status quo
The gap in resilience and DRM investments
The basic rationale and common narrative for DRM
is associated with saving lives, reducing losses andpromoting effective recovery from disasters. This is
usually achieved by implementing risk management
measures, including early warning systems,

this background risk of a disaster, risk aversion

vulnerability and risk assessments, protective

rises, higher-risk and higher-return investments

infrastructure, education, land use policies andare prevented, innovation is stifled, jobs remainbuilding codes. Although some countries, cities

uncreated and development opportunities are

and communities have made significant progress,

lost 17, 18, 19 (World Bank, 2013; Gollier and Schlee,

the importance of such ex-ante prevention is not

2006; Hallegatte et al., 2014). Many of the risks

yet reflected in the majority of policy and practiceeventually end up – willingly or unwillingly – withby governments, aid agencies, communities orgovernments, and the anticipation of ‘hidden fiscal

businesses (World Bank and United Nations, 2010).

deficits’ also affects future investment decisions,International DRM financing over the past 20 years

which are, in general, financed by new debt (Schickhas been highly volatile and has totalled less thanand Polackova Brixi, 2004). This could be seen,

0.4% of overall aid, with most resources flowing to afor example, in New Orleans following Hurricane

relatively small number of middle-income countries.20

Katrina, where authorities underestimated theimpact of background risk on the private sector.
As a consequence, large firms have moved away tolocations that offer safer operating environments,

Meanwhile, global economic disaster losses since1980 have grown from 0.116% to around 0.22% ofgross world product, with losses exceeding $100
billion annually for the period from 2010 to 2012.21, 22

thereby adding to New Orleans’ economic

While it is hard to define an optimal level of DRM

difficulties (McCulley, 2007).

action, it is clear that a significant DRM investment
gap persists, with expenditures on prevention

almost always lower than those on disaster response,and on average $7 spent on relief versus $1 spent on
risk reduction.23

There are many reasons for this underinvestment

Crucially however, the cost of DRM tends toin disaster resilience: a lack of resources in poor

dominate decisions because they are morecountries, political myopia, a limited understanding

immediate, concentrated, and observable, while theof risks and impacts, greater political buy-in for

benefits are longer term, distributed more broadly

more visible post-disaster support initiatives, andand often less visible.29 Undoubtedly, investment

the ready availability of international post-disasterdoes have costs, and these in turn have trade-offs:

assistance.

for example the higher building costs for more

24, 25, 26, 27

The competition for publicresources is particularly evident in the aftermath ofresilient infrastructure, and restrictions on land-

financial crises, with more immediate employment

use that may slow potential short-term economic

and wealth creation being the overarching drivers ofgrowth. In general, those affected by the costs ofpublic policy. Here, DRM may be seen as detrimental

such changes are better at mobilising opposition

to growth and development – for example throughthan the more dispersed populations who may

the rejection of planning applications in coastal

benefit, including future generations.

zones. However, one critical issue for Ministries ofFinance is the way in which investments in DRM are

Decision makers may, therefore, overlook thedecided and evaluated.

benefits of reducing background risk andIncomplete cost-benefit analyses result insignificant part of the story. This approach leads toinsufficient investments in DRM

the perception that investments in DRM are ‘sunk’

A traditional cost-benefit analysis (CBA), thestandard public-sector economic appraisal tool,
weighs up the cost of investment against the benefit
of avoided losses (which only materialise in the caseof a disaster). Over the years, appraisals of public
investment decisions to support risk management
using CBA and other appraisal tools have improved
their scope and methodologies. Assessments havetackled, among other issues, the complexities
associated with the probabilistic estimation of risk,
monetising indirect risks and benefits, the role ofgenerating co-benefits and, therefore, miss a

costs if disaster does not strike. However, DRM is
not simply an insurance measure, undertaken inparallel to development policy. Rather, investments
in DRM can make an integral contribution todevelopment, poverty alleviation, fiscal stability andeconomic growth. This briefing aims to redress thebalance by examining the benefits of investing in
DRM, adding to its already crucial role in saving lives
and avoiding losses by including the development
dividend of reducing background risk and the cobenefits generated by building resilience.

discounting, and considering portfolios of options
rather than single solutions. Nevertheless, somechallenges remain, including the considerationof intangibles (loss of life, amenity and culturalvalues and risks, risks to ecosystems, etc.) and therole of systemic interventions into sectors such as
education and health that build resilience.2809

10
2. Why investing in DRM pays off, even before adisaster strikes
However, even if the anticipated disaster does not
Disasters do not only cause devastation in theiraftermath; the risk of a disaster can also cause
economic inefficiency and losses even before
disaster strikes. While the benefits of avoiding

losses and damages have been widely studied anddocumented, there has been far less focus on theways that investments in DRM can yield a real
dividend, even in the absence of a disaster.30, 31, 32
Figure 2 highlights the triple dividend of

occur for a long time, increased resilience meansthat background risk is reduced and economic
development potential unlocked (2nd Dividend of
Resilience). In addition to these primary objectivesof DRM, investments in resilience may yield furthersocial, economic and environmental co-benefits (3rdDividend of Resilience). In the medium- to long-run,these benefits can trigger a wide range of benefits
across society, income groups, geographic regions,
government entities, industries, and supply chains.

investments in disaster risk management: reducing
losses and damages in the event of a disasteris often the key motivating factor for disasterrisk management (1st Dividend of Resilience).

Figure 2: The Triple Dividend of Resilience
Investing in resilience reduces losses and damages in the case of a disaster. However, it can also yield development benefits regardless of disasters.
Typically, standard disaster risk management investment appraisals fail to account for the 2nd and 3rd Dividends of Resilience.

Disaster risk
management(DRM)

1st Dividend of Resilience: Avoided losses
1st primaryobjective

Increasd resilience reduces disaster losses by:
1. Saving lives
2. Reducing infrastructure damages
3. Reducing economic losses

Benefits whendisaster strikes

investments
2nd Dividend of Resilience: Development
2nd primaryobjective

Increased resilience unlocks suppressed economic potential andstimulates economic activity by:
1. Encouraging housholds to save and build assets
2. Promoting entrepreneurship
3. Stimulating firms to invest and innovate.

3rd Dividend of Resilience: Co-benefits
Secondaryobjective

Beyond increasing resilience, DRM projects also yield positive
economic, social and environmental side-effects (co-benefits).

Cost of DRM:
1. Cost of project
implementation
2. Potential
adverse effects
of DRM policies &investments**e.g. Rising land prices due to land use restrictions may harm poor

Benefits
Regardless of
disaster

2.1. Investing in DRM: avoiding
loss and enabling sharedprosperity and growthshows that individuals who have experienced a

Safeguard development gains by

2009; Dang, 2012). As a result of their high aversion

limiting losses

to risks that are not managed effectively, they

DRM actions are necessary first and foremost
to reduce the loss and damage caused bydisaster events to society, the economy and theenvironment. Economic damage to property iscompounded by damage to the flow of inputs, goods
and services. In many disasters, including Hurricane
Katrina in the USA, the losses as a result of businessinterruption have exceeded the losses caused bydamage to property. Reducing the incidence of deathand disease are the prominent social objectives,
while there is a growing recognition of psychologicalimpacts and damage to community cohesion anddisaster in the past perceive this background risk
to be substantially higher than those who havenot (Cameron and Shah, 2013; can den Berg et al.,forego opportunities, such as potentially profitable
investments in productive capital, impeding thepotential for increasing welfare and development.36,
37

If natural background risks are seen to be reduced

through ex-ante DRM measures, households andfirms are more likely to take higher-risk andhigher-return investment decisions, which havebeen shown to be essential for driving economic
growth.38, 39, 40, 41 Crucially, such higher-risk higherreturn activities include entrepreneurship andinnovation, which in turn can trigger further

socioeconomic benefits.42, 43, 44

security. Disaster events also create environmental

There is strong evidence in developing countries

degradation that can reduce the ability of ecosystems

that households and businesses evaluate the trade-to provide services vital for human needs, such as

offs between risk and returns according to theirreliable and clean water supplies.

ability to cope with potential adverse shocks, such

The impacts of disasters, as they have done in thepast, will continue to hamper and even reverse
economic growth in weaker economies andchallenge our ability to tackle extreme poverty andshare prosperity. Taking action to manage disasterrisks will, therefore, be a crucial part of safeguarding
past and future progress in human and economic
development in the coming decades. Reducing losses
remains a fundamental part of this goal, but it is
only part of the picture. DRM actions can also create
other investment benefits and stimulate growth anddevelopment through reducing background risk.
Unlock growth potential by reducing theburden of background risk

as heavy rainfall or other extreme events.45, 46, 47
Low-income households, in particular, are driven tochoose low-risk activities, which yield low returns
and perpetuate poverty.48, 49, 50 There is tentative
evidence that investors factor background risk into
their financial decisions, and rating agencies arestarting to consider the role of disaster risk for theircountry and credit ratings. Disaster-prone cities witha global outreach, such as New York, Rotterdam andSingapore, use their achievements on disaster andclimate resilience to attract investment.51
Investing in DRM can unlock productive potential
and trigger investments in income generating andgrowth-promoting activities. These broader benefitsof reduced background risk are exemplified in

High and increasing disaster-related backgroundTabasco State in Mexico (Box 1), where the reported

risk makes individuals less willing to take positive

benefits of flood protection measures suggest

risks (e.g. innovation, entrepreneurship) andthat they have generated development dividends

provides adverse incentives to investors.

beyond just the avoided disaster losses on which the33, 34, 35

Empirical evidence from Indonesia, Nicaragua,
Peru, Ethiopia, Pakistan and various other countries

investment was based.

11

12
Reducing background risk benefits theBenefits extend to industries, their supply

labour market

chains and the entire economy

Taking positive risks, engaging in entrepreneurial

Reducing the burden of background risk by increasing

activities, investing in productive assets andresilience generates benefits that extend acrossinnovation – these activities are the drivers of job

sectors to the macroeconomic level. A region- or

creation, rising incomes, greater productivity,and overall growth.53, 54, 55, 56 However, investing inresilience not only adds new jobs, but also addresses
pre-existing labour market inefficiencies, which arecaused by the presence of natural background risks.

country-wide boost to entrepreneurship, innovationand productive investments can benefit the overall
development of a country. Protecting coastal

regions, towns, business districts, or ports with flood
protection (e.g. dikes), can foster economic activity,

In Bangladesh, for example, vulnerable households

long term planning and capital investments.62

choose occupations that do not necessarily match

This is because large DRM infrastructure investment

their skills sets, but that help to mitigate natural risk.57(such as dikes) protects not only large firms, but

Rather than focussing fully on agriculture, low-income

also their workers, suppliers and social and logistic

households hold several parallel occupations as backups for the event of flooding. Such diversification ofoccupations within a household is used as an ex-anterisk management strategy in the face of local rainfall
variability risks (droughts and floods).58, 59, 60, 61 At thesame time, this occupational diversification meansthat households are not as productive as they would
have been if they had specialised. Reducing backgroundinfrastructure. If firms and their stakeholders,
as a result, are able to make long-term capital
investments, engage in trade and promote businessdevelopment, the entire area benefits collectively.
In fact, by fostering business growth, firms can send
positive effects up their supply chains, benefiting

other firms and their regions.63

risk should be central to DRM investment to build
resilience and mitigate such sub-optimal labour market
outcomes, thereby increasing job creation, incomes
and the welfare of poor people.

Box 1: Resilience dividends of flood risk management in Tabasco State, Mexico
A study of flood defence investment in the Mexican state of Tabasco found a benefit-cost ratio of 3:1, contributing to
avoided damages and losses when floods occurred in 2010 equivalent to $3 billion, or 7% of the GDP of Tabasco (or fourtimes Tabasco’s Public Works budget in 2014).52 This figure is compelling, but does not capture the full dividends of theinvestment at state, city and household level. Qualitative evidence suggests that in reducing background risk in the area,
these DRM investments stimulated development dividends that included:•

continued investment by oil companies in the region that were otherwise leaving•

private investment in housing in previously flood-prone areas•

public investment in improved drainage and electricity networks in areas where floods had previously deterredsuch investment.

The DRM investments have also stimulated co-benefits for society and the environment. The local government has
improved parks and street paving in areas that were once neglected because of regular flooding, while tree planting has
been initiated on riverbanks to prevent landslides.

Governments, including finance ministries,

Not only do investments in DRM reduce these

are able to plan for long term growth

implicit liabilities, converting contingent liabilities

Through improved DRM, governments can better
plan for disaster risk and deliver long-term growth.
The risks of disaster events are implicit liabilities,
since governments are expected to respond to acutecommunity needs. Planning for disaster risk is notan easy proposition, as disaster risk is a contingent
liability, i.e. costs accrue only in case of an event(so-called fiscal ‘time bombs’). Furthermore, large
parts of liabilities are of an implicit, unwritten
nature (e.g. disaster relief and recovery assistance toaffected households and business) rather than direct
liabilities (reconstruction of lost infrastructure andassets).64 For example, the massive direct costs from

into explicit ones through the fiscal hedge matrix
and measures such as insurance, hedge funds,
reserve funds or credit lines, helps to stabilise publicfinance. There has been substantial experienceand evidence of applications in disaster-prone
countries over the past 10 years.68 Specifically,
reduced budgetary uncertainty allows governments
to focus less on crisis management and more on
longer-term issues. At the same time, aligning fiscal
risks with fiscal hedging instruments makes a strong
contribution to the more systematic assessmentof investments into DRM and other priority
investment areas.

damage and reconstruction in Grenada following
Hurricane Ivan in 2004 were compounded by theneed for large relief and recovery spending while
the fiscal position was affected by a subsequent falls
in Central Government revenues from a projected

2.2. Co-benefits of DRM
investments to economy,society and the environment

surplus of $17 million to a deficit of $54 million, orAs well as addressing background risks, many ex-

4.5% of GDP.65

ante DRM measures and investments in resilience

Contingency and fiscal-risk planning have seen
good progress over the years, driven to some extent
by the ongoing financial and fiscal crisis affecting
many states, and there are tools available toassess and manage risks in the fiscal balance sheet
systematically. The fiscal risk matrix, for example,
helps to identify contingent liabilities, while thefiscal hedge matrix can be used to study options towill deliver co-benefits that are not dependent
on disaster events. This can be seen as a secondary

objective of DRM, but reinforces the fact that
resilience investments can achieve multiple
objectives. Co-benefits may well be economic, but
can also include significant environmental and social
benefits, many of which are commonly associatedwith development investments.69

hedge and reduce risks.66 Approaches for fiscal-risk

Maximising co-benefits from government

planning organised around the fiscal risk matrix

investment

have been successfully applied. As one example,
Colombia recently discovered that natural disasterrisk constituted the second most important sourceof contingent liabilities (after legal actions).67

Examples of co-benefits include the direct
employment opportunities delivered by the DRM

investment, environmental service co-benefits oftree planting to stabilise slopes, or the provisionof reliable water supplies and hydro-electricity
from investments in flood protection measures.70
A study of community based adaptation measures
found that boats for evacuation purposes were used13

14
outside flood events as income-generating fishing

Social safety nets, which assist low-income

vessels, evacuation shelters were used at otherhouseholds after a disaster, have been proventimes for community meetings or schools, raised

to deliver far-reaching positive development

water wells provided clean water year-round, andimpacts beyond the initial disaster resilience

community training for evacuation has resulted inintent. They can be effective tools for increasinggroups that can advocate for themselves on a wider

food security, education, and health services:74

range of issues.71, 72 In Jamaica, the installation of

co-benefits that are distinct from helping thededicated irrigation systems to overcome the impact

poor manage the background risk of disasters.75

of drought has helped farmers to increase their

Indeed, social safety nets strengthen the social

productivity and output, as well as reducing soil

contracts between governments and citizens, anderosion and deforestation by optimising previously

underscore social accountabilities.

inefficient farming practices (Box 2).

73

Similarly, community participation in developing

Other co-benefits may be more indirect, where

and managing DRM activities such as earlysome people and assets experience greater levels

warning systems and preparedness planningof well-being or production as a result of the

may also generate significant social benefits.

wider impacts of such investments on the long-

Many local governments have limited resources,

term prospects for growth and development in

so often rely on community knowledge,

the area. For example, the protection of a business

communications, vehicles, storage facilities anddistrict may help to stimulate the development oflabour. This can strengthen community cohesion,

wider supply chain activity, while improving theas well as local state-society relations in non-resilience of transport networks for commercial

emergency situations – even in the absence ofactivity may also improve human mobility toa disaster. DRM measures to build resilience

access employment.

can, therefore, contribute significantly to social
welfare and inclusiveness.

Box 2: Resilience dividends of risk management inJamaican agriculture
The agricultural sector contributes about 6% of GDP in Jamaica and employs 17-18% of the labour force. A number of
DRM programs, including the Jamaica Rural Economy and Ecosystems Adapted for Climate Change (JaREEACH), havefocused on the domestic agriculture sector, largely located on small hillside plots. Key resilience dividends of suchintegrated DRM investments include the following.
•

DRM irrigation projects that have reduced the impact of droughts, particularly in Southern Clarendon and St.
Elizabeth. These farming communities have also benefited from increased productivity and output relative toother areas, even in the face of drought over the April-June quarter in 2014.76•

A rainwater catchment tank and drip irrigation system in Lititz, St. Elizabeth, has improved small-scale irrigation
resulting in higher yields, less soil erosion and deforestation, and an increase in socioeconomic status.77•

Loan defaults as a result of severe weather events have been greatly reduced. While loans were once common
among farming communities, famers who benefited from investments in irrigation systems have been able toproduce consistently across rainy and dry seasons.

•Training and shared learning on drip irrigation has strengthened social capital and built comradeship within thecommunities, especially among the farmers in the field.

Where Ministries of Finance and public and private

Prudent DRM investments can increase notco-investors can ensure that such co-benefits are

only the profit margins of firms but also benefit

identified and captured, they are likely to enhancethe entire economy. Direct benefits stem fromthe overall package of returns – direct and indirect

the increased capital stock and production of– that can be generated by DRM investments. In

the firm itself (and contributions to a higher

so doing, they will contribute to the increasingGDP). Co-benefits stem from multiplier effects,

commitment by policy and decision makers to

employment opportunities and tax revenues. In

ensuring that development plans and investments

addition, the reduction of uncertainty can have a

are environmental and socially responsible, as

stimulating effect on both the firm and the overall

well as enhancing the successful financing andeconomy, including by attracting more foreign

implementation of DRM programmes and projects.

direct investment. Crucially, these wider benefits

The identification of these co-benefits can draw on

may, in turn, improve the market for companies’

the various environmental and social frameworks

products and services.

established by multilateral instructions – notably
the UN and its specialised agencies, and theWorld Bank Group (Table 1 for an example fromthe International Finance Corporation (IFC), theprivate sector arm of the World Bank Group).

Table 1: Potential environmental and social co-benefits ofdevelopment investments78
POTENTIAL ENVIRONMENTAL
CO-BENEFITSPOTENTIAL SOCIAL
CO-BENEFITS
Protection of workers, including vulnerable

Private sector DRM investments can

Avoided or minimised adverse impacts

categories of workers such as children,

boost profitability

on human health and the environment by

migrant workers, workers engaged by third

avoiding or minimising pollution

parties and workers in the project’s supply

At firm level, there may be clear saleable bi-

chain

products or joint products from DRM-oriented

Safeguarding of personnel and property

investments, such as a decision to install solar

Sustainable use of resources, includingin accordance with relevant human rights

panels to protect the firm against disruptions

energy and water

principles and by avoided or minimised risks
to the affected communities

from central power stations, where excess solar
electricity can be sold back to the grid. Other

Reduced project-related greenhouse-gas

Improved or restored livelihoods andbenefits beyond firm level may be harder toemissionsstandards of living for displaced persons

measure or the value of benefits may accrue largely

Improved living conditions for physicallyto others, such as the value of company sprinkler

displaced persons through the provision ofsystems in protecting neighbouring properties,

Biodiversity protected and conserved

resettlement sites

reducing fire risk in the community. Similarly,
there are wider benefits of measures to strengthen
the foundations of buildings so that they don’t

adequate housing with security of tenure at

Maintained benefits from ecosystem services

Dual purpose disaster shelters can be usedas schools or training centers.

collapse during storms or earthquakes, or better

Sustainable management of living natural

water drainage practices that also reduce flooding

resources through the adoption of practices

Equitable sharing of benefits from the use ofthat integrate conservation needs andcultural heritage

beyond the company’s assets.

development priorities15

16
3. What does this mean for finance ministers,
policymakers and practitioners?

The agreement and implementation of the post-

Governments can work to leverage private sector

2015 Hyogo Framework for Action provides aaction and investments based on the triple

significant opportunity to address the barriers to

dividend of resilience. While many major DRM

greater disaster resilience by targeting elements ofinvestments will be made by governments, DRM

knowledge, protection, insurance and coping thatis increasingly important for the private sector,

are fundamental to a holistic risk management

given growing risks and increasing disaster losses.

approach.79 It also provides an opportunity to

Businesses own the vast majority of the buildings

change incentives and create a new narrative:

and a considerable portion of the infrastructure

one that regards upstream investment in disasterat risk in most countries. In addition to providing

resilience as good for growth, good for shared

goods and services, the private sector attracts

prosperity and good for poverty reduction,

foreign investment and foreign exchange, as wellirrespective of potential reduced future losses.

as providing tax revenues for government. There

Avoiding losses is critical, but considering
only avoided losses is not enough. Reducing

disaster losses has been, and must continue to be,a key motivator of DRM investments. However,recognising the wider development benefits of
DRM adds an additional rationale in favour ofinvestment. Conventional cost-benefit analysis of
DRM measures are heavily loss-centric. Weighing
up the certain cost of investing in resilience against
the uncertain benefit of avoided losses leads
decision makers to underestimate the benefits.
A comprehensive cost-benefit analysis of DRM
investments should calculate the full monetary valueof the triple dividend of resilience.80
Investing in DRM yields real returns – even in theabsence of disasters. Increasing resilience reduces

the background risk of disasters. As a consequence,
households and firms can be encouraged to becomeless risk averse, undertake long term investments in
productive assets, engage in entrepreneurial activities,
and lengthen their planning horizons, all of which areneeded for economic development and growth. Thisis crucial to take advantage of structural changes in
the global economy, new market opportunities, anddeveloping new market niches.

are interdependencies within the private sector
in relation to supply chains, including throughdependence on infrastructure services, a trained
workforce and sound institutions. All of theseinterdependencies add to overall vulnerability todisasters, as damages to one entity are transmitted
to others. Conversely, this also means that DRM
investments have the potential to ripple throughout
the economy, not only in helping to stem losses
but also through their co-benefits and spending
stimulus. Governments have a strong role toplay in developing the enabling environment forbusinesses to manage risk effectively in line withprofit incentives. This may include developing andenforcing regulations that maintain minimum levelsof risk management, such as through building codes,
but also through ensuring public availability of riskrelated information to enable businesses to makeinformed risk management decisions.
It is important to understand the full costs ofdisasters against which the full benefits of DRM
should be compared. Recent research has shown

not only the costs of disasters in terms of asset loss,
but also in terms of long-term income and welfare
losses. It was once thought that after rebuilding
their houses, bridges and factories, communities‘caught up’ to the level of income that they would

have otherwise achieved. But it is increasingly clear

groups such as workers, local communities,

that this is often not the case, and that the long-term

indigenous peoples, investors and consumers in

effect of disasters has impacts on income growthdifferent ways.

for years. Therefore, governments can better assess
the relationship between costs and benefits of DRM
investments when both potential costs (often morenegative than previously assumed) and benefits(often more positive than previously assumed) are
understood. The evidence base is particularly poorin Latin America, East Asia and West Africa.

Link DRM investments with development andclimate finance mechanisms. 2015 sees two

important financing opportunities for building
resilience. In July, the Third International Conference
on Financing for Development will assess progress andaddress new and emerging issues. Building resilience
into development planning and programming, as well

Determine where benefits might be mostas harnessing private sector finance for resilience cansignificant. Not all DRM actions will have the same

be central components. At the end of the year, a new

potential for generating wider benefits beyond

global climate change agreement will be agreed in

avoided losses. One key consideration is the likely

Paris. Internationally, climate finance needs to play atimespan and legacy of the intervention. Land-

key role in building disaster resilience. $3 billion has

use planning decisions or urban development incumulatively been pledged to multilateral adaptation

exposed locations are likely to have far-reaching andfunds, with significant investments for incorporating

long term implications for both risk and resilience

climate risk and resilience measures into national

dividends. On the other hand, social safety net

development planning.81 National governments andschemes or preparedness plans may only haveother implementing agencies have the opportunity toplanning horizons of a decade or less. Therefore, theensure that DRM is integrated into these development

costs of implementation need to be assessed about

and climate finance mechanisms.

potential resilience dividends over the long term:
cheaper actions with short-term horizons may not
produce such significant benefits.

Make the new Hyogo Framework for Action
a catalyst for growth and development. The

Sendai agreement provides a platform for national

Begin to explore and communicate resilience

governments to make joint commitments to reduce

dividend for country, sector or regionalrisk, underpinned by a targeted commitment tocontexts. Despite the apparent potential of ainvest, especially at a local level. Such commitments

resilience dividend approach, it also presents

are likely to include stand-alone financing of DRM,

considerable challenges that frustrate thebut must also encompass DRM embedded into

communication of these incentives to businesses,

broader development planning and expenditures.

taxpayers, and political supporters. One

Emphasising the multiple dividends of spending

important step is to expand empirical evidence

on disaster resilience will help to make the caseof background risk reduction and co-benefits,

to national treasuries and political decisionand their value relative to other costs andmakers, who will need to make investments via thebenefits. The next phase of this report will focus

integration of risk as part of delivering sustainable

on developing both methodologies for better

development. The implementation of the post-2015

assessing these benefits as well providing further

disasters framework will, therefore, rely on theevidence through additional concrete examples.

provision of specific tools and guidance on financing

Another challenge is to understand risk wherefor national governments. The DRM community will

data are poor or hazards have not previously beenneed to scale up efforts to communicate the many

experienced. Analysis also needs to give greater

incentives for investing in DRM and integrating risk

attention to the distributional effects of how

concerns into development. The triple dividend ofresilience costs and dividends impact various

resilience can play a central role in the process.

17

18
Endnotes
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