Flood damage washes 5% off share price

A major flood loss can lead to a 5% drop in the average share price of a company, according to analysis of 71 of the world’s largest publicly-traded companies following recent flooding after Storms Desmond, Eva and Frank struck the UK and Ireland in 2015. Twelve months later, these companies’ shareholder value had fallen by an average of 5% -- equivalent to £62bn.

The research, conducted by advisory group Pentland Analytics and FM Global, highlights the importance of investment in risk management and building resilience before the flooding season hits this winter, particularly as a loss in shareholder value is unlikely to be covered by insurance coverage.

The fall in prices reflect investors’ lowered expectations of future cash flow – not the cost of the flood damage itself.

“The decline in shareholder value for the analysed companies highlights that flood risk preparedness is a sound approach to preserving value. Making smart choices and investments in site selection, emergency planning, structural reinforcement, elevation of critical machines and equipment, as well as the use of flood barriers can help build resilience,” said Paolo Larentis, senior engineering risk and natural hazards specialist at FM Global.

Dr Deborah Pretty, founder of Pentland Analytics added: “Investors increasingly consider flood-related property loss and business disruption as bad management rather than bad luck. Investors evaluate the disruption caused by flood and anticipate the long-term harm to corporate reputation, market share and growth ambitions. They reassessed the future of these disrupted companies and it was 5% worse. That would seem to dwarf the cost of investing in flood protection.”

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