Companies should go beyond responding with cash and materials when catastrophes strike, and plan to be more resilient in an increasingly unpredictable world
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 30 to 40 years,” says Prof Debarati Guha-Sapir, director of the Centre for Research on the Epidemiology of Disasters (Cred) at the Louvain Catholic University in Belgium. Cred maintains a global database covering a century of catastrophes, and has factored into 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 and 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 750,000 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 climatic phenomena. Floods, storms and droughts are “increasing very substantially”, says 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. Reinsurer Swiss Re publishes an annual review of the financial impact of natural events. The latest, published in March, found that catastrophes claimed nearly 304,000 victims and cost insurers $43bn in 2010. In fact, 2010 was a record year for the number of disasters, though in financial terms, the amount paid out by insurers was less than in 2005, when Hurricane Katrina hit New Orleans.
The financial impact of disasters is going up because of increasing populations and 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 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 2004 tsunami posed hugely complex relief challenges, because it affected different countries over a wide area, including some that were very isolated. It also “gained unprecedented levels of publicity as well as record-breaking levels of donations from the international community, governments, business and the public,” according to an IBLF report reviewing the lessons of the disaster. “But with this high profile came a greater interest in the effectiveness of relief and recovery initiatives.”
In the tsunami’s aftermath, a more intense dialogue between corporations and the UN 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 say 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”. Pfizer, for example, seconded employees to relief agencies to assemble inventories of medicines and work out what was 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 US 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 ham-fisted response of the federal and state governments. Wal-Mart also provided $20m 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 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 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 Centre (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 March earthquake and tsunami in Japan, 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 ways other than 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 that 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.
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 February 27 2010, not long after the massive Haitian earthquake, Chile was hit by a magnitude 8.8 quake (the Haitian quake was magnitude 7.0). Damage was immense, estimated at $30bn, Cred says. 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 Guha-Sapir notes that “many of the highly seismic zones are rapidly growing urban centres,” giving the examples of Mexico and Turkey, where “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.
Coke helps in Haiti
The Coca-Cola Company has a history of contributing to disaster relief going back to 1917, when it encouraged its bottlers to donate to the Red Cross during the first world war. Since then, its disaster relief work has become more sophisticated. It donates generously to rescue funds, and participates in post-disaster recovery and rebuilding phases in other ways.
Allyson Park, Coca-Cola’s vice-president for sustainability communications, says: “Since 2000, the Coca-Cola system has contributed nearly $40m in donations to various organisations to aid communities and respond to disasters.” This does not include the $31m cash and in-kind pledge in the aftermath of the recent earthquake in Japan.
The January 2010 Haiti earthquake seriously affected Coca-Cola’s operations in the country. It is the country’s largest employer, and makes 98% of its sales in Haiti through small local businesses. Its response to the disaster therefore needed to address the fundamental question of rebuilding its own business. It swiftly gave cash, and used its advertising power to encourage others to do the same. It also provided logistical support, delivering with its own vehicles water and drinks to the earthquake zone.
“We are now working in Haiti from an economic standpoint,” says Park. In September 2010, a longer-term initiative, the Haiti Hope Project, was started, to get 25,000 Haitian mango farmers back on their feet, and to increase their incomes. Even before this, shortly after the disaster, Odwalla, a Coca-Cola subsidiary that sells fruit drinks in North America, rolled out a mango drink from which all the profits go to building up Haitian mango production.
In its work in Haiti, Coca-Cola partners with multilateral organisations and aid agencies such as the Inter-American Development Bank and USAID. More broadly, the company’s partnership with the Red Cross and Red Crescent societies was renewed in January 2011, with Coca-Cola providing money to disaster preparedness activities, and utilising its marketing might to generate donations and build awareness of the Red Cross’s work.