How do cities grow and remain attractive to inward investment?

Cities must take responsibility for understanding and managing their risk from natural disasters, if they are to grow and remain attractive to inward investment, says Greg Lowe, Executive Director in the Capital, Science, and Policy Practice at the Willis Group.

The UN Climate Summit held in New York in September 2014 aimed to raise political momentum and action to reduce greenhouse gas emissions and build resilience to climate risk, ahead of this November’s climate change negotiations in Paris.

A key objective of the summit was to agree actions to address the challenges caused by changing climate and the increasing frequency and severity of natural disasters.

Combined with rapid urbanisation, the losses resulting from natural disasters are far greater than ever before and are becoming unsustainable. As stated in the Sendai Framework for Disaster Risk Reduction 2015-2030, published after the UN World Conference on Disaster Risk Reduction in March, the public and private sector must continue to work together to integrate natural disaster and climate risk into global financial regulation.

Willis’ 1-in-100 Initiative, launched at the UN Climate Summit, aims to do just that. At its heart is the 1 in 100 year solvency “stress test” – similar to the scientific approach adopted by the insurance sector in the past 25 years to assess its own ability to manage risk.

The test evaluates the maximum probable annual financial loss that an organisation, city or region could expect once in a hundred years, enabling them to understand their risk and manage it more effectively and economically.

A number of other global insurance industry initiatives are underway. For example, the Resilience Modelling and Mapping Forum is coordinating research and providing access to open modelling and mapping platforms, which is vital to give cities and organisations the data they need to evaluate their exposure to natural disaster risk.

A big challenge remains a general lack of understanding of risk. It is clear that the impact of risk exposure, particularly in economic terms, is not well understood, either by individuals or city governments.

For example, while a 1 in 100 year event has a 1% chance of happening in any one year and hence could be perceived as ‘low risk’, over 20 years this risk rises to 20%. Clearly, 20 years is well within the lifespan of a building, an infrastructure operating contract and residency of a home.

While the level of understanding of risk in the public sector may be low, it most certainly is not in the private sector. Investors are beginning to consider resilience as a key factor in the risk management and investment process.

Therefore, to encourage investment, city governments will be forced to consider and declare their risk exposure and how they are working to mitigate that risk, if their city is to remain competitive in the global market. Inevitably, cities will have to disclose their exposure to risk in their annual financial reports. This ‘city share price’ will be a measure of how attractive a city is to investors.

A further impact of high risk exposure is that insurance penetration is low in the world’s most vulnerable regions. Insurance is a cost-effective way to finance disaster recovery and incentivise resilience. This issue is not restricted to the developing world either: A significant proportion of New York’s infrastructure damaged by flooding caused by Hurricane Sandy in 2012 was uninsured, with losses picked up by the US Government.

Where natural disasters occur regularly, such as in flood- or earthquake-prone regions, risk sharing through ‘risk catastrophe pools’ have become popular in recent years. Funded by government and through taxation (typically nationally), these provide for protecting buildings and infrastructure but also for disaster recovery.

It is clear that, to make themselves more resilient and competitive in the global economy, cities need to take responsibility for understanding and managing their risk more effectively.

The long term socio-economic benefits of this approach far outweigh the short term pain. As Swiss Re CEO Michel Lies pointed out at the UN Climate Summit: “Up to 65% of climate risks can be averted through conscious risk management and cost effective resilience.”

Designing City Resilience will be held on 16 and 17 June 2015, 66 Portland Place, London. For more information and to book a place at the event, visit www.designingcityresilience.com. Visit the Facebook page and follow the summit on Twitter: @rescities; connect via LinkedIn; or see the Youtube channel.

Participating cities include:

Barcelona, Spain

Barcelona has a history of energy and transport-related infrastructure failure, as well significant pollution. More recently, Spain’s financial problems have meant the city has experienced high levels of unemployment which have sparked a break-down in traditional family structures, affecting social cohesion. Manuel Valdes Lopez, Manager of Infrastructures and Urban Coordination, will discuss the city’s plans to address these challenges.

Bristol, UK

Bristol is experiencing rapid growth and is investing significantly in renewing its infrastructure to meet the needs of its expanding population. Plans for more decentralised governance structures are being put in place, with the aim of empowering citizens to minimise risk and becoming increasingly resource efficient in the long-term. Sarah Toy, Bristol’s Chief Resilience Officer (CRO), will share what the city is investing in, how it is doing it and the value that it aims to unlock. She will be joined by Bristol’s Mayor, George Ferguson, who will outline the city’s plans for a more decentralised governance structure, with the aim of empowering citizens.

Chennai, India

South India’s coastal city of Chennai is currently the fourth most populous metropolitan area in the world. The city suffered damage from a Tsunami in 2004, is prone to flooding and lacks the infrastructure to meet the needs of its growing population. Chennai will present its plans to minimise future risk and how the city is using public private partnerships (PPPs) to achieve these aims.

Glasgow, UK

Glasgow has come a long way in building resilience since its days of heavy industry but continues to grapple with high levels of unemployment and a severe lack of social cohesion. The city’s CRO Alastair Brown will talk about the plans being put in place to tackle these challenges and create future opportunities.

Melbourne, Australia

Melbourne is affected by severe weather events and its future is likely to be impacted significantly by climate change. Complex governance structures and fragmented infrastructure management present barriers to building resilience. Toby Kent, Melbourne’s CRO, will discuss how the city is adapting and adopting a more coordinated approach to city management and resilience.

New York City, USA

New York City (NYC) constantly battles resilience on two fronts: fighting the stresses that large successful cities face daily and ensuring it is prepared for shocks that, as Hurricane Sandy proved in 2012, are all too prevalent.

NYC published its plan for implementing sustainability and resilience initiatives in April 2015. One New York: The plan for a strong and just city, includes plans to have the cleanest air in 50 years; to plant 950,000 trees and install 6 million square feet of reflective rooftops; to upgrade building codes to prepare for floods, wind and extreme weather; and to reduce carbon emissions by 80% by 2050, compared with 2005.

The aim is to ensure policies are in place to promote a better quality of life for New York’s citizens, support economic success and tackle social inequality, while also mitigating the risks of climate change.

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