(Photo credit: David Baron, Flickr Creative Commons)
As the United States looks toward the next four years of presidential decision-making and economic policy, the federal capital has played host to the ongoing discussion on finding solutions to both social and economic resilience and sustainability for the future.
It was heartening to learn, in attending several of these discussions, that the Centre for Risk Studies’ pioneering research on world cities, which became Lloyd’s City Risk Index 2015-2025, has been central to recent talks regarding public and private partnerships on risk management within Washington DC’s resilience and sustainability communities. Given the growing range of risks facing the world, having an appropriate framework for understanding, measuring, and managing those risks ought to be central in efforts to improve city resilience. At the Risk Forum held by Lloyd’s and the American Security Project on February 17, the City Risk Index was described as “one of the few quantitative measures of resilience available.”
Finding solutions to improve resilience and sustainability in risk management will require the efforts of public and private sectors as well as partnerships with analytical communities. Business and policy leaders ought to consider analytics as an integral contributor to discussions on resilience and sustainability. There is truth to a prevailing sentiment in the insurance industry that analytics create markets and markets, in turn, attract capital.
We know that wealth creation worldwide is going through an unprecedented phase of concentration into urban centres and that cities are the economic engines of growth for the majority of countries — according to McKinsey, 80% of global productivity occurs in cities. But the factors which contribute to a city’s productive wealth also pose a great danger to its continued success. With a higher urban density comes the risk of disease, dissent and degradation. With increased globalisation and technological advancement comes the threat of war, cyber sabotage, terrorism and environmental catastrophe. In the last 30 years, economic losses have increased by a factor of 3,000 and insurance losses by a factor of 1,000 due to the frequency and impacts of natural disaster events worldwide on a more concentrated population. In the past 50 years alone, cities have coped with financial crises caused by sovereign defaults, seen political and social movements escalate into civil wars, experienced terrorist attacks, and suffered from serious flood events. Throughout, governments have been the beneficiaries of the successes and failings of their constituent cities and public and private enterprises have maintained shifting but symbiotic relationships during times both good and bad.
The speed at which an economy is able to recover following a catastrophe is critical in assessing overall economic losses. The impacts of both pre-existing and emerging risks on the cities can be assessed by the hazard, vulnerability, and resilience, as in the framework used for the City Risk Index. The hazard is described by probabilities and magnitudes. Vulnerability is defined by exposure and fragility whereas resilience is defined as the adaptive capacity to respond and recover.
That recovery process can only begin when afflicted cities are able to efficiently maintain law and order and provide for reparations, the final costs of which are significantly diminished by proactive contingency planning. In many instances, governments are employing strategies to focus more on improving overall resilience of a city to withstand and recover from its exposure to a wide range of risks.
A framework approach is allowing for a better understanding of a city’s risks and providing some systematic tools for improving its resilience. I am encouraged by the demand building for activities relating to better data and analytics within the resilience and sustainability communities in proximity to government discussions. Improving the state of a city’s general infrastructure and emergency response management must remain a top priority for policy makers.
Disclaimer: This column reflects my personal views and not necessarily those of the Cambridge Centre for Risk Studies or the University of Cambridge Judge Business School.
I would like to thank you for your interesting thoughts about economic resilience and sustainability. Please allow me to discuss and share the following views and insights based on my academic experience in the field of sustainable accounting and finance:
1. Understanding the sustainable business model represents one of the main challenges of sustainability programmes all over the world. For example, business organisation may need to answer some of the following questions:
o Who will value the nature and society?
o How we could ensure fair and equal allocations of chances and opportunities between current and future generations?
o How much the net profit that should be scarified, by business organisations, to help the environment (nature) to re-develop (create) the consumed organisational resources to be used by the future generations?
o How do we know the requirements and needs of future generations?
2. It may be important to look for suitable finance and accounting tools to evaluate and assess the management of the main imperatives of sustainable development e.g. reducing carbon emissions, supporting human rights, empowering the low income people in the society, climate change and supporting economic democracy. These imperatives may require coherent sets of organisational data recording, reporting and assessment practices to manage the social and environmental activities of the economic operations of business organisations.
3. It may be relevant to compare between the costs of maintaining a sustainable business model against the conventional one. This process could be managed in terms of cost benefits analysis. If the cost of maintaining a sustainable business model is greater the benefits of conventional model, we need to think about some public policies to pay this extra costs. These policies may involve new tax regime, investment incentives and operational guidelines.
4. Business organisations may need to think about how they could obtain the organisational legitimacy from stakeholders (society) to accept their desires for profit maximization and wealth accumulation.
Please feel free to share your feedback. I will be very happy to discuss any comments of suggestions with you.
FYI, I am working currently with ICAEW (London) to provide workshops within a project around the UN sustainable development goals. These workshops are designed for Master and MBA students from Royal College of Art and Judge Business School.
Thanks again for your article. I am really enjoyed reading it.
Dr Mohamed Saeudy
PhD, MSc, PG Cert (TLHE), PG Cert (APR), BA, FHEA, ACCA (fundamentals skills level)
Lecturer in Accounting and Finance
Aberystwyth School of Management and Business
Office: Room 2.31, Rheidol Building, Llanbadarn Campus
Phone: + 44 1970 622938
Fax: +44 1970 622524