Letters from Sendai – n°4
Towards more holistic decision-making
Today, I participated in a working session on economics and decision-making on DRR, in which about 300 negotiators, decision-makers and experts from the EU and developing countries participated.
The session centred on economic decision-tools that can truly inform decisions. I presented my personal commentary of progress on this over the 10 years since the last World Disaster Conference in Kobe in 2005.
Over the last 10 years, there has been increasing recognition of the role and importance of disasters in terms of adversely affecting socio-economic development.
- Large investments have been made by countries, donors, IFIs, NGOs and private sector to improve risk detection, analysis and management, and also the use of economic appraisal tools for decision-making.
- Rhetoric has shifted a lot from emphasizing ex-post reconstruction and relief to strengthening ex-ante disaster risk reduction. According to some sources the balance of funding ex-ante action vs. ex-post has shifted from 5% vs 95% to 13% vs 87%.
Yet, disaster losses and risks are increasing, and climate change is adding to the picture unfortunately: More is to be done.
A key question is how economic and decision-analysis can help further shift the balance?
I mentioned further action in three regards:
(i) Improving the evidence base on the costs and benefits of DRR;
(ii) Following a co-benefits logic
(iii) Going beyond a focus on costs and benefits involving multi-attribute decision-making.
Costs and benefits of DRR
In terms of improving the evidence base, there have been substantial efforts over the last few years in term of increasing the evidence on optimality-focussed Cost-Benefit Analysis, which has been used to conduct appraisals of investments and evaluations of finished projects.
Currently, the evidence may be summarized as suggesting very broadly a ration of costs vs. benefits (losses avoided and reduced) of 1 to 4 Euros.
Yet, the confidence is still low-medium (using ‘IPCC Uncertainty language’), focused on hard resilience-type options (structures and infrastructures), and it is not clear whether such thinking has really informed decisions or has been used to defend decisions that have already been made.
As the second suggestion, increasingly there is need to consider a co-benefits approach as funds are ever scarce, risk generation is multifactorial, and there is some push towards understanding joint strategies, which generate benefits from DRR that are integrated with benefits from other sectors and investments. For example, integrating flood risk prevention with watershed management, irrigation and drainage.
A co-benefit approach also has stark appeal for current efforts towards mainstreaming DRR into sectorial decision-making. As one example, the Asian Development Bank (voluntarily or on a needs-driven basis) in its lending portfolio to client countries over the period from 1995-2011 has been able to come to a funding ratio of 57% on DRR vs. 43% on ex-post support. One factor has been a strong focus on flood risk management and integration with sectorial policymaking in the water sector.
The co-benefit logic is currently being pursued in a project co-led by Swenja Surminski of LSE with the Overseas Development Institute and the World Bank. Stephane Hallegatte of the World Bank introduced such thinking in the session, and suggested there may be three dividends from DRR:
• Avoiding loss
• Stimulating development through reduced risk, and
• Generating additional co-benefits across sectors
Generating additional co-benefits across sectors
As the third contribution, given multifactorial risk generation and multiple potential benefits cutting across sectors I suggested to focus more strongly on multi-objective decision-making, which can be pursued using, e.g., Multi-criteria analysis (MCA). MCA is based on the following principles: policies have multi-dimensional impacts on human societies and the environment; impacts can be clustered into economic, social, environmental and governance categories and objectives in terms of reducing or increasing these impacts, for which criteria (such as improved economic performance, positive effects on social cohesion or high employment) are specified, which are later on measured by way of indicators; dimensions, criteria and indicators are then weighted subjectively. A key advantage of MCA relative to CBA is that it does not require the monetization of difficult to value non-market and/or intangible costs and benefits of DRR, such as environmental effects. Disadvantages are that the expression of impacts in different terms than only monetary makes them difficult to compare, weighting of different criteria can be seen as subjective, and decisions based on MCA may be economically sub-optimal in strict sense.
MCA has been seen as an attractive and important decision-support tool in environmental decision making in general, but very rarely in DRR-related application. The chair of that session, Samantha Chard, who is co-leading emergency management policy in Australia, picked up on this question and reported on MCA analysis she had commissioned on disaster management.
Other presentations, such as from the Minister of Planning of the Philippines emphasized the role of agency and incentives in disaster risk and DRR which needs further focus in decision-making. Presentations were followed by some comments from the floor, and overall, there seemed to be agreement and willingness to consider more holistic approaches to economically focused decision-making, which provides good entry points for work in Enhance, where we are going down this route as well.
From UN World Conference on Disaster Risk Reduction – Working Session 17: Economic Aspects of DRR, UN World Conference on Disaster Risk Reduction.
by Reinhard Mechler
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