Source: UNISDR Disaster Risk Reduction
Your Excellency, Åsmund Aukrust, Minister of International Development,
Excellencies and Colleagues,
It is a great honour for the UN Office for Disaster Risk Reduction to be organizing this high-level forum with the Kingdom of Norway. I would like to start by expressing my deep appreciation to Norway for hosting this forum and for its leadership on the topic of finance – both for disaster risk reduction and for sustainable development, especially in the context of the ongoing negotiations ahead of the 4th International Conference on Financing for Development.
I am also thankful to Norway for serving as co-chair of the Group of Friends for Disaster Risk Reduction, which is critical to supporting the work of UNDRR as we race towards the 2030 deadline of the Sendai Framework for Disaster Risk Reduction.
Indeed, as we look around the world, it is clear that we must accelerate the implementation of the Sendai Framework to protect people and sustainable development from the growing impacts of disasters.
Countries, rich and poor, are facing disasters that are larger and more destructive. This is partially driven by an increase in extreme weather events, but it is also driven by risk-blind investments, which increase the exposure and vulnerability of people and assets. The end result is more expensive disasters, which are a threat to economic prosperity and sustainable development.
Over the last five years, global economic losses from disasters have increased on average by 25%. This increase represents tens of billions of additional losses each year.
We have seen this manifest on one end of the spectrum with the recent California wildfires, which were reportedly the most expensive disaster in the history of the United States.
On the other end of the spectrum, we have seen war-ravaged Syria suffer approximately $5 billion US dollars in damages as a result of the 2023 earthquakes, and the Libyan city of Derna largely swept into the Mediterranean as a result of severe floods. This is on top of the loss of life, which was in the thousands, and continues to be felt most acutely by the Least Developed Countries.
When we add on top of these direct costs, the cost of slow-onset events and the indirect impacts of disasters, such as productivity losses, compromised health, and disrupted education, the total cost of disasters is likely in excess of a trillion US dollars a year.
Moreover, as disaster costs increase, insurance companies are pulling out of high-risk markets, even in developed economies. For instance, “nonrenewal notices” of home insurance in the United States surged by nearly 30% from 2018 to 2022 to more than 600,000 a year. And in developing countries, much of the losses, are not even covered by insurance, driving more people into poverty.
Even humanitarian assistance, which is a measure of last resort for many affected countries, is becoming scarcer. In 2024, only 43% of the budgeted needs were funded. This year, the gap will likely be higher.
Therefore, to reduce the burden of disasters, avoid a spiral of decreasing insurability, and limit humanitarian needs, it is essential that we invest in disaster risk reduction.
This means increasing dedicated funding to disaster risk reduction, while also ensuring that all other development investments are risk-informed.
At this Forum, we will dive into this issue in detail. And to help set the stage, I would like to briefly review where these investments could come from, starting first with domestic resources.
Domestic public funds are the primary source for investments in DRR. Early warning systems, resilient hospitals, and other DRR investments tend to have a public good nature, meaning that they benefit society but are difficult for investors to capture direct financial returns.
Yet, our research shows that only a limited share of the public budget, less than 1%, is allocated to DRR and that current spending only meets in most countries 10 to 25% of the needs, leaving a significant gap.
Although resources are limited, countries have an opportunity to make public spending more efficient and impactful by further integrating disaster risk reduction in public finance. This requires a conscious effort to create a ring-fenced budget allocation for DRR to empower responsible agencies, while also mainstreaming DRR in sectoral plans. To that end, we recommend the use of appropriate accountability mechanisms, including budget tagging and tracking of DRR-related expenditures.
We also need to reinforce synergies across government, for instance between the Ministries of Environment and National Disaster Management Authorities, to break silos and optimize the use of climate and DRR-related financing. Similarly, we need to ensure that finance is available both at the national and sub-national levels, as many investments happen locally.
That said, it is important to consider that many developing countries face unique challenges that constrain their ability to scale up investment in DRR – and that is high levels of debt.
Since 2010, debt in developing countries has grown twice as fast as in developed countries, and they face much higher borrowing costs.
At the same time, disasters fuel debt in affected countries. For example, a recent study from the Inter-American Development Bank shows that debt levels in the Caribbean are 18% higher three years after a severe storm than normally expected.
These outcomes can be mitigated by pre-arranging financing mechanisms ahead of disasters, such as contingency credit lines, disaster-related clauses in sovereign debt instruments, and risk-transfer instruments. These mechanisms allow for a quicker recovery, thus limiting the impact on growth and the economy.
The second primary source of finance is the private sector.
On average, the private sector is responsible for about 75% of a country’s investment in assets, such as factories and real estate. If those investments are risk-blind, they will lead to the creation of new disaster risks and exacerbate existing ones. We see this, for instance, through the expansion of urban development into hazard-prone areas or the construction of infrastructure that is not disaster-resilient.
This can be avoided through regulatory frameworks, risk information, and financial incentives to make private investment risk-informed and to create markets for resilience-building solutions.
We should also better leverage the financial sector, which has played a limited role thus far in DRR financing. For example, the rapid rise in the green bond markets has only had a limited impact on driving investments into adaptation and resilience, in part due to the lack of market standards and taxonomies. These market standards are necessary for the emergence of financial instruments, such as resilience bonds, and to guide investor decisions.
Similarly, the local banking sector can play a role in supporting small and medium businesses to access finance for investment in resilience-building, including through blended finance mechanisms.
In this regard, I am happy to report that UNDRR has been pioneering some work in this area, including the development of a “Resilience Taxonomy,” in partnership with the Climate Bond Initiative, and the launch of a guide for adaptation and resilience finance, which we developed with Standard Chartered Bank and KPMG.
The third and final major source of finance is the international community, specifically through the provision of Official Development Assistance. This is an area that is currently under stress but remains critical for many developing countries, and its promotion is one of the seven targets of the Sendai Framework.
Looking at the data, we see that, between 2019 and 2023, only 2% of ODA projects had DRR as an objective. And within the humanitarian sector, we find that the amount of funding for disaster prevention and preparedness has actually gone down over the years – from an already low level of 3.6% between 2015 and 2018, to 3.3% between 2019 and 2023.
These trends show an imbalance between the increase in disaster risks around the world and the limited international funding being allocated to Disaster Risk Reduction.
Such funding is critical to protecting development gains and reducing humanitarian needs, and for some of the most vulnerable countries, they are unable to invest in DRR without international assistance.
With that overview, I believe we at this Forum have a unique opportunity to address some of the biggest challenges around DRR financing. And to help guide our discussions, I would like to suggest that we aim to make progress on three main objectives:
First, the development of a national-level Roadmap for DRR financing systems to help countries raise the funds they need.
Some of the questions we would need to answer are: what key elements should be included in such a roadmap and what has worked, or not worked, in countries?
Second, explore international actions that we can commit to together.
For example, what initiatives or partnerships can emerge from this Forum on DRR Financing? How can we better leverage existing international cooperation to strengthen DRR? And how can we ensure the integration of DRR in the global discourse on financing, in particular, in the upcoming 4th International Conference on Financing for Development?
And third, what more can be done to ensure that all investments are risk-informed and do not lead to disasters
For public sector investments, how can we encourage the alignment of economic development plans with DRR strategies to avoid the creation of new risks? And what reforms or changes are needed to encourage risk-informed investing in the private sector?
I think it is fair to say that this is a lot to cover over two days. That said, given the calibre of the participants, and the leadership of our host, I am confident that we can achieve concrete outcomes.
In closing, I want to again thank Norway for making this Forum possible at a critical time when financing is the single challenge that unites the disaster, climate, development, and humanitarian domains. The unique advantage of disaster risk reduction is that it can simultaneously strengthen all the other domains because of its emphasis on reducing vulnerabilities and building resilience.
I am grateful for your participation in this Forum, and I look forward to our discussions.
Thank you.
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