Part 1: Background Situated on the “Pacific Ring of Fire” and subject to frequent climatic phenomena such as “el niño”, Indonesia is highly prone to natural hazards and has a relatively high incidence of earthquakes, tsunamis, landslides and volcanic eruptions. Perennial flooding and other disasters cause substantial disruptions to the country, especially its commercially vibrant capital, impacting the private sector, government, and society.

The Government of Indonesia acknowledges the need for an integrated approach to disaster management involving government, private sector, and civil society stakeholders (the three pillars); of which the role of the private sector, a vibrant mix of multinationals (MNCs), national companies (NCs), small medium enterprises (SMEs) and a vast informal economy, is often underestimated.

Mercy Corps Indonesia and R3ADY Asia-Pacific conducted a scoping study on optimizing private sector engagement (PSE) in disaster risk reduction (DRR) with the objective to prioritize actions to strengthen PSE in DRR and resilience efforts in Indonesia. Such optimization will strengthen not only the resilience of internal business functions, but also of the societies, of which businesses are a part.

To this end, the study explored the following research questions: What are the existing patterns of PSE in DRR initiatives?

What are the gaps and opportunities related to PSE in DRR and resilience?

The study draws preliminary conclusions by investigating the areas of policy, capacity, coordination, and communication. The methodology involved collecting data from private sector stakeholders in Indonesia’s economic hub and capital, Jakarta. 71 key informants (17 from government, 28 from the private sector, and 26 from civil society) cooperated in in-depth interviews, followed by a verification de-briefing.

Part 2: The Indonesian private sector and DRR

DRR stakeholder landscape The study outlines the Indonesian government’s structure for DRR and roles and responsibilities it has assigned to various actors (government, private sector, civil society, and international organizations) during the three DRR phases (pre-disaster, emergency response, and post-disaster). The government has assigned the following responsibilities for the private sector:

Phase Private Sector Role and Responsibilities

Pre-disaster - Conduct education, training and coaching on DRR and resilience - Develop the facilities and infrastructure to reduce the disaster risk

Emergency response - Conduct emergency response, based on expertise

Post-disaster - Assist with rehabilitation and reconstruction, based on the business entity’s capacity

Optimizing Private Sector Engagement in Disaster Risk Reduction in Indonesia

A report by Mercy Corps Indonesia and R3ADY Asia-Pacific

Impact of disaster risk on the business processes All private sector respondents reported experiencing impacts from disasters; among the most mentioned of these impacts were: asset damages, financial losses, supply chain disruption, and reduced operational performance. The motivations of a company to participate in DRR vary, depending on the nature of the business, size, assets, company policy, and culture, among other factors. However, the overarching motivation

[of the private sector] was safeguarding business continuity and limiting vulnerability to disasters. By reducing risk from small but frequent disasters, a business can be much more competitive in the long run1. The interviews revealed another motivation, spurred by witnessing the loss of others: the desire or feeling of responsibility to help affected communities.

Patterns of private sector DRR activities in Indonesia The study summarizes the type of DRR activities, in which private sector actors (categorized by company size) are engaged, by phase of the DRR cycle. A few interesting observations were identified relating to company size, type of DRR activity, mechanisms, and government policy, as summarized below:

Standard Operative Procedures (SOPs) and Business Continuity Plans (BCPs)

Most large companies and some medium-sized companies consider disasters to which they are most vulnerable in SOPs. Most MNCs develop BCPs to reduce the risk of disruption, while only some big and medium NCs have these. Most small and micro companies’ institutional policies consist of verbal safety regulations (no written policy, eg. BCPS/ SOPs).

Long-term vs. Short-term Considerations

Big companies tend to have strategies and plans for the short and long term, post-disaster. SMEs tend to be more dependent on short-term benefits, resulting in a more short-term focus.

Types of Activity

Securing supply chain/assets: A secondary DRR priority of larger companies involves securing their supply chain, infrastructure assets, and the stakeholders with whom they share geographic location or direct inputs.

Large-scale disaster first response: Private sector actors will often be first to act (while the government works to mobilize) – mostly at their own expense and for the benefit of the community, providing an opportunity for positive brand exposure.

Donations: In other instances, e.g. when expertise does not match response efforts, private sector actors will donate to well-organized response initiatives, financially or in kind.

Pro bono assistance: MNCs and large NCs tend to provide recovery and reconstructive assistance as well as community-centered initiatives. Often this is initially pro bono, after which, their services can be acquired on a commercial basis.

DRM Mechanisms Companies’ policies, mission and vision: MNCs generally develop BCPs as dictated by company headquarters (HQ). In cases

where this drive by HQ is absent, BCPs are less common, indicating the importance of HQ policy. Forum participation: Several forums have been established to facilitate multi-sector dialogue between stakeholders. Champion leader and/or focal point: Having a leader on DRR issues within a company, in either an official or unofficial role,

can help to facilitate coordination of DRR matters, especially if the person is higher in the hierarchical structure. Corporate social responsibility (CSR) initiatives: Interviewed companies reported conducting DRR activities as part of CSR.

Government Policy Need for companies to better understand the roles and responsibilities of different government actors involved in DRR; Need for coaching and/or assistance to clarify how businesses can meet regulatory requirements; Need for capacity building, specifically among SMEs, to meet regulatory requirements; and Need for regulatory incentives and harmonization of disaster risk management (DRM) policies to prioritize resilience

building.

1United Nations International Strategy for Disaster Reduction (UNISDR), Disaster Risk Reduction Private Sector Partnership (DRR-PSP) Membership Pack, UNISDR, 2014.

The following diagram highlights the motivations that exist for private sector actors to engage in DRR, as well as the major gaps in the DRR framework that PSE and cross-pillar collaboration could address in order to build a resilient society.

Part 3: Private sector involvement in DRR partnerships

The study discusses private sector partnerships with regard to DRR and groups types of partnerships into the following categories: coordination, consultation, co-investing, and collaboration. Forms of private sector involvement/partnership encountered in the study:

Category Forms of involvement encountered

Coordination (Company with other parties)

Company has a government relations officer/department and/or company has a civil society engagement officer/department which communicates and coordinates directly with DRR actors;

Company has established a Yayasan (foundation, separate legal entity) with specific purpose to engage with civil society regarding DRR activities; and

Company uses CSR programs, either ad-hoc or continuous, to address DRR.

Consultation Company consults government authorities about how best to assist after disaster and in which capacity; and

Company consults non-governmental organizations (NGOs) or civil society organizations (CSOs) about specific skill training and facilitating contacts with communities.

Co-investment

Company makes financial donations to other actors who do the actual implementation; and

Company makes tangible in kind donations, intangible in kind donations (dedicate skills and time) or a mix.

Collaboration Company is responsible for direct implementation of specific DRR activities, complementing activities of other actors, each with a specific role;

Company is responsible for implementation support of specific DRR activities, e.g. company organizes logistics for DRR event in which government/CSO provides staff, and NGO facilitates the discussion; and

Company is co-responsible for implementation, e.g. company insures individual community members against disaster, government verifies impact intensity upon claim, and NGO provides specific skills training for CSOs who are point of contact for insurance in the community.

The study also found that actors’ perceptions of roles and responsibilities of other actors affect their willingness to engage in DRR, as well as engage in partnerships in DRR. The following highlights those perceptions:

Roles of other actors are very specific to their function in a partnership (between different pillars) and based on expertise;

There is an inherent gap in the “before disaster” phase that neither government, nor the private sector proactively and consistently appear to initiate the policy dialogue and actions for disaster preparedness;

Trust between actors in the different pillars must be strengthened to overcome perceptions about other actors’ effectiveness, accountability, and motives;

Company priorities are preparedness and emergency response of the company internally, then resilience of supply and value chain actors. The priority of civil society is to care for the constituents they serve. Government priorities are aligned with their ministry or department’s priorities;

CSOs and government agencies try to approach DRR in an integrated manner (internal resilience with community resilience), and companies tend to view these as two widely separate activities; and

High-level commitment messages need to be sent to indicate an actor is serious about an initiative or relationship and contributes to trust.

Part 4: Gaps and opportunities

In Partnerships Optimizing communication Communication is often cited as one of the “usual suspects” when discussing obstacles to partnerships. With good internal communication all partners benefit from a greater understanding of the other actors’ point of view, incentive systems, and way of working and thinking. Many private actor informants suggested to spread DRR-related info and outreach through external communication and regular business channels, e.g. chambers of commerce, professional associations, sector forums, etc.; which would establish clear access channels to information concerning DRR policy, best practices, and methods, shared and utilized by each of

the three pillars as per their sector, expertise, and needs. Partnership development would also benefit from the practice of disseminating information about an actor’s purpose, strategies and business-, governance- or social-DRR goals to potential partners in order to facilitate aligned and productive partnerships. Realizing public expectations The 2014 results of the Edelman Trust Barometer show that business remains the most trusted in Indonesia by the general public2, and that there is significant public expectation that business leaders play a leadership role in shaping society and in addressing the nation’s challenges, including DRR. Public expectations are generally a good motivator for the private sector and present an opportunity to engage in DRR to gain positive brand exposure and reputational benefits, which are often key business drivers. Indonesia is a big market opportunity and with increasing public awareness, through widespread social media and online news access, the “social license” for businesses to operate effectively in Indonesia is very important. Thus, building trust and meeting public expectations is becoming a priority and provides an incentive for businesses to invest in DRR (a major issue faced by millions of people across the country).

Building trust leads to better coordination Multi-stakeholder partnerships require trust. Stakeholders may have preconceived perceptions about other actors’ effectiveness, accountability or motives for DRR engagement. The private sector tends to put more faith in other private sector actors than in government when it comes to efficiency, for example. The study confirmed that this tendency exists in the Indonesian private sector, and thus trust-based relationships will have to be fostered. Building such trust can be achieved through familiarization with different actors in the field; one way to do this is thorough interaction at conferences or networking events. The importance of trust and coordination was highlighted by a representative of an oil and gas company who stated that, “the only way that these strategies will be effective is if other companies operating in the same geographies are also using these same strategies, if not then we will have limited impact and there is little incentive for us to engage.”

In Private sector DRR activities

Incorporating smaller enterprises and community at large in BCPs Most MNCs and some medium-sized companies have BCPs. Although these plans are designed to address the company’s needs, this does not mean they cannot be used constructively for the benefit of the community at large – raising the question of whether smaller enterprises could benefit from what bigger companies are doing. Is there a way to bypass the learning curve bigger companies have gone through, in terms of business continuity? Or can smaller related businesses be shielded from risk due to their relation to a large company with a comprehensive plan (e.g. big companies who try to build DRR capacity along their supply chain)?

Sharing of DRR knowledge in the private sector In the private sector there tends to be a greater incentive to share DRR information about mitigation and response practices and business continuity planning vertically, along the value chain, rather than horizontally. Because one business relies on other businesses in the same supply chain, there is solid motivation for sharing knowledge and DRM systems vertically. However, horizontal incentives are not as straight forward, as sharing information may lead to increased

2Edelman Indonesia (2014). Edelman Trust Barometer Global. http://www.edelman.id/edelman-indonesia/ further-rise-in-trust-in-indonesia-with-business-as-the-most-trusted-institution-in-the-country-says-the-2014-edelman-trust-barometer.

efficiency or resilience of direct competitors, which may weaken one’s own competitive position. There are, however, forums where companies share their experiences horizontally, such as Indonesia Business Links or the forum for sustainable agricultural development (PISAGRO). While these forums are currently limited, their existence demonstrates a changing mindset and provides more opportunities for sharing information across companies.

There

In the Indonesian context:

SME sector: gap or opportunity? SMEs in Indonesia contribute 60%3of annual GDP to the national economy, and provide livelihoods for 97%4 of the workforce. If DRR can be mainstreamed in SMEs, the majority of the economy would be more resilient. To close the capacity gap, resources are required; and since resources are concentrated with bigger companies and the government, partnership is the most logical way to start engaging the huge number of SMEs. Different models of partnership can be piloted, and successful ones replicated.

Role of CSR in DRR Indonesia finds itself in a unique position to leverage the role of CSR for DRR. Indonesian Law 40/2007 regulates CSR and mentions that all companies are required to conduct CSR activities as a form of their responsibility towards society. For some sectors and for State Owned Enterprises (SOEs), there is a mandatory percentage of the annual budget to be spent on CSR. The study found that most private sector actors who do not engage in DRR due to company policy or guidelines, initially engaged in DRR through ad-hoc CSR activities. CSR is often an entry point for companies to engage in DRR.

In the Enabling Environment for Private Sector Engagement

Regulatory framework, incentives, motivation Need for harmonization of policy and regulations. Opportunity for the government to leverage regulations, e.g. by placing requirements on private

sector actors, and/or as incentives, using awards or fiscal incentives to motivate the private sector.

Access to information, knowledge, technology and data Most data related to natural hazards in Indonesia is publicly available through government agencies. Uniformity in data and information allows different actors to develop common definitions and ways

of evaluating outcomes and progress.

Forums that provide actors of different pillars a platform for discussion Multi-stakeholder forums have great potential as platforms where actors from the three pillars can

exchange views, engage in networking and matchmaking, etc. Currently in Indonesia, there are several DRR focused forums, such as the government-initiated Plannas at the national level. There are also local forums, often initiated by different government authorities, such as the municipality, BPBD, etc. There are also forums purely for business purposes as well as organizations in the cross-section of business and society. The study found that these private sector forums have been underutilized.

3 Indonesian Ministry of Cooperatives/APEC Policy Support Unit, Policy Brief no 8- SMEs in the APEC Region, December 2013.

4 ibid.

2. Create enabling environment for commitment to disaster preparedness [Government lead role]

3. Public-Private Partnerships: using a SHARED VALUE approach

Part Five: Conclusions and Recommendations

Articulate business incentives for DRR engagement through core business cases

o Use evidence of positive cost-benefit calculations to show the cost and schedule benefits of integrating disaster preparedness.

Use supply and value chain approach for strengthening partnership for disaster preparedness.

o Shares responsibilities, risks, and costs across parties.

o Reduces business disruption in time of disaster.

o Strengthens continuity for the consumer.

Focus on micro-, small- and medium-sized enterprise (MSME) opportunities.

o MSMEs make up 97% of the Indonesian workforce; however more capacity building around DRR is needed. o MSMEs often depend on short-term benefits; to engage MSMEs, private sector actors should incorporate some short-

term tangible results. ffff

Harmonize policy at national level and regulations at local level for coherence. o Map DRR policy from national-subnational levels for the use of government departments, civil society and private

sector. o In this process of harmonization, private sector and civil society must be involved in policy dialogue and development.

Without their take on specific DRR related issues, a design that includes their perspective is extremely difficult to achieve. The government, though very interested in the private sector perspective, does not yet have a coherent strategy for effectively elucidating it. The private sector must be ready and willing to contribute their perspective.

Facilitate access to information. o Identify reliable sources of information and DRR/Resilience partners. o Create, expand and strengthen multi-stakeholder forums.

Promote engagement through incentives. o Requirement to have a BCP to register a business. o Recognition and awards for excellent business DRR. o Facilitate development of Public-Private Partnerships (PPPs).

o Select partners based on function, capacity and network. o Form partnerships with clear roles and responsibilities for each partner. o Identify common goal that will bring increased value to all [SHARED VALUE]. o Design a steering mechanism and corresponding lines and modes of communication.

o Ensure high-level commitment from all parties.

1. Make the business case for DRR