Disaster Risk Finance: Assessing Risks and Building Resilience
One of the biggest risks from climate change come through the impact on critical systems, including food systems, supply chains and critical infrastructure. These so called systemic risks can cause cascading impacts on people, economies and government balance sheets.
This so-called indirect impacts can be difficult to assess, but can have the biggest and most ‘macro-critical’ impacts. For example, research by the World Bank found that direct damages to infrastructure systems in low and middle income countries totalled to almost $20 billion per year, but the overall impact, through the disruption to economies can total more than $600 billion.
In early 2021, the World Bank Disaster Risk Financing and Insurance Program (DRFIP) partnered with Oxford Infrastructure Analytics to prototype new tools for disaster risk finance for critical infrastructure that can help governments, Central Banks and Financial Institutions to assess the risks and build financial resilience.
Through the pilot study developed a prototype regional, multi-sector and multi-hazard infrastructure network risk analysis methodology and platform, covering electricity and transport networks across seven Southeast Asia countries (below)
Watch: Takemoto Shoko (World Bank) discusses physical climate risks and the prototype risk analysis tool collaboration.
Revealing impacts on assets and economies
For the first time, the tool allows users to assess the direct and indirect impacts of floods and typhoons to specific assets, and also to the wider economy. This can be used by governments, financial institutions and others to assess financial risks, identify hot spots of vulnerability and plan approaches to reduce these financial risks.
An additional unique innovation of this project was to use only globally available datasets. By doing so, we were able to demonstrate that this type of complex network analysis can be scalable and made accessible to all countries at low cost. This paved the way to the development of the G-SRAT tool.
We find that the indirect impacts to the economy through disruptions to infrastructure systems can indeed be much larger than the direct impacts, but show that this is particularly acute in denser urban areas.
This initiative was piloted in its first phase in the Southeast Asia region, with financial and technical support from the Japan-World Bank Program for Mainstreaming Disaster Risk Management in Developing Countries.
Acknowledgements
Use case developed with the World Bank Disaster Risk Financing and Insurance Program (DFIP).
