In recent years, natural disasters – hurricanes, tsunamis, earthquakes, wildfires – have been occurring more frequently and causing more and more damage. In the five years from 2011 to 2015, the annual global damage from natural disasters was four times what it was 30 years ago (adjusted for inflation). The number of people affected is also growing, often exceeding 300 million in recent years. States, non-profit and public organizations, traditionally responsible for aid, now simply do not have enough money for everything.
Corporations have had to step in. While in 2000 less than a third of the world’s 3,000 largest companies were involved in the disaster response, by 2015 that share exceeded 90 percent, with the average amount of aid increasing tenfold. Among the 500 U.S. giants, the percentage of responders rose from less than 20 percent in 1990 to more than 95 percent in 2014. This raises two obvious questions: how important is the business presence factor in the region, and whether philanthropy benefits companies and their shareholders.
A team led by Louis Ballesteros of George Washington University conducted two studies based on a newly created database of corporate donations to natural disasters from 2003-2013 (it excluded gradually evolving crises such as famine or heat waves). Using insurance and other data, the researchers estimated the human and economic damage from each disaster, the speed of support, and the timing and extent of recovery in the affected regions.
The first study assumed that firms that knew the region well responded faster to the disaster and that the higher the proportion of such firms among donors, the more effective the recovery was in the long run. Companies associated with the region, knowing the needs better, were more interested in resuming normal operations as soon as possible. The researchers also hypothesized that companies that donated production resources rather than money (say, a mining firm could provide excavators, a transportation firm could provide logistical support) should have been able to help faster and more effectively.
To test the theory, researchers identified pairs of similar countries that had experienced shocks comparable in scale, but had received heterogeneous types and amounts of aid: from companies operating in the region or in other regions; in cash or in kind. Such parameters were taken into account as the size of the country’s economy, the level of damage from the disaster (the number of killed and injured) and the reaction of the media (it is known that all these factors affect the speed of assistance). The speed of recovery was measured by the rate of development of the country as reflected in the annual UN Human Development Index.
The results showed that, indeed, countries where aid was provided mainly by local market companies recovered faster from disasters than others. Countries where more than 44% of the donations came from companies operating there felt, on average, 145% better than others 10 years later in similar disasters. In-kind aid was faster on average and led to a fuller recovery of the country.
The second study focused on “return on donations.” First of all, it found that corporate first responders set the tone for the rest: in 89% of cases, almost all companies, regardless of value, market share or financial performance, gave as much as the first. In 2010, within hours of the Chilean earthquake, global mining company Anglo American donated $10 million to the victims. In the days that followed, three of its major competitors contributed similar amounts. “When something terrible happens, firms have to figure out how to respond,” explains Tyler Rye, a professor at the University of Pennsylvania.