<p>Assessing corporate financial risk exposure to floods facilitates strategic decision making to make prudent investments for risk mitigation. Financial models for flood risk assessment are informed by hydrological and financial data as well as geospatial information to capture corporate exposure through the lens of individual facilities’ risk. This article proposes an approach that integrates datasets derived from hydrological models with those from corporate financial records. Flood damage algorithms are then used to quantify both direct impacts on capital assets and indirect effects on business interruption loss (BIL). Capital stock losses are derived from the valuation of capital investments in fixed assets. The model was tested on publicly disclosed corporate records from four Japanese companies, to quantify under- and over-estimation of the approach, and to understand sources of uncertainty. The comparison demonstrates reasonable results with the modeled estimates, while also highlights the importance of carefully interpreting and selecting regional property damage curves and business interruption duration data. By using sales and investment in fixed assets as a baseline for business interruption and property damage, flood impacts vary based on corporate business activities, such as manufacturing or food and beverage. Two corporations show a variation in property damage criteria exhibiting greater values than those of interruption, implying that the former dominates financial risks. Mean changes in BIL parameters for another company show greater values, indicating its dominant role in financial flood risk. The results from expected annual damage assessment at the facility and corporate scale facilitate strategic investment decisions for flood risk mitigation.</p>

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Assessment of Corporate Financial Flood Risks Due to Property Damage and Business Interruption Loss

  • Masahiro Abe,
  • Peter Adriaens

摘要

Assessing corporate financial risk exposure to floods facilitates strategic decision making to make prudent investments for risk mitigation. Financial models for flood risk assessment are informed by hydrological and financial data as well as geospatial information to capture corporate exposure through the lens of individual facilities’ risk. This article proposes an approach that integrates datasets derived from hydrological models with those from corporate financial records. Flood damage algorithms are then used to quantify both direct impacts on capital assets and indirect effects on business interruption loss (BIL). Capital stock losses are derived from the valuation of capital investments in fixed assets. The model was tested on publicly disclosed corporate records from four Japanese companies, to quantify under- and over-estimation of the approach, and to understand sources of uncertainty. The comparison demonstrates reasonable results with the modeled estimates, while also highlights the importance of carefully interpreting and selecting regional property damage curves and business interruption duration data. By using sales and investment in fixed assets as a baseline for business interruption and property damage, flood impacts vary based on corporate business activities, such as manufacturing or food and beverage. Two corporations show a variation in property damage criteria exhibiting greater values than those of interruption, implying that the former dominates financial risks. Mean changes in BIL parameters for another company show greater values, indicating its dominant role in financial flood risk. The results from expected annual damage assessment at the facility and corporate scale facilitate strategic investment decisions for flood risk mitigation.