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This article is one of a series on the Treasury's Living Standards Framework

Get a group of risk practitioners together, and not one of them would contest the statement that we need to be more proactive in risk management. That means being more deliberative about our levels of resilience. So how do we become more resilient?

Resilience has two dimensions: The ability to absorb, and the ability to adapt from a shock or stress:

Figure 2 - Two dimensions of resilience: Absorption and Adaptability

We can apply these dimensions when thinking about the risks to, and resilience of, the living standards capitals

NATURAL CAPITAL FINANCIAL/PHYSICAL CAPITAL
RISKS RISKS
  • Insufficiently timely climate-change mitigation and adaptation
  • Degradation of environmental quality
  • Accelerating biodiversity loss
  • Natural resource depletion

Financial capital

  • Delayed action towards a low-carbon future
  • High income and wealth inequality
  • Price shocks
  • Cyber risk

Physical capital

  • Affordability constraints for maintenance and renewing of infrastructure
  • Natural disasters and extreme weather events leading to infrastructure failure
RESILIENCE RESILIENCE

Absorption

  • Safety margins in environmental thresholds (planetary boundaries)

Adaptation

  • High-quality and comprehensive institutional regulations for sustainable use of natural capital
  • Strong biosecurity response capability
  • Whole-of-society collaboration for environmental protection and restoration

Financial capital

Absorption

  • Adequate steps towards a climate resilient economy
  • Inclusive growth
  • Strong cyber security

Adaptation

  • Trade diversification
  • Well-functioning insurance markets

Physical capital

Absorption

  • Robustness of physical capital
  • Redundancy and flexibility of critical physical capital

Adaptation

  • Capacity and level of collaboration within New Zealand's construction industry.
HUMAN CAPITAL SOCIAL CAPITAL
RISKS RISKS

Health

  • Water scarcity
  • Natural hazards and extreme weather events
  • Decreasing food security
  • Expanding morbidity and demand pressure on the health system
  • Inequality

Knowledge and skills

  • Large changes in skills requirements
  • Inequality in educational outcomes

 

  • Poverty and income inequality
  • Migration and diversity
  • Low institutional trust
RESILIENCE RESILIENCE

Health

Absorption

  • Public, institutional and political support for water management reform
  • Investment in new agricultural technologies and increasing national food stocks and emergency reserves to deal with decreasing food security
  • Strong health prevention

Adaptation

  • Emergency preparedness and resourcefulness

Knowledge and skills

Absorption

  • Strong foundational skills
  • Higher skills

Adaptation

  • Responsive educational institutions
  • Flexible labour market

Absorption

  • Low inequality
  • High trust in public institutions

Adaptation

  • Collaboration and conflict resolution skills

Now comes the hard part. Agreeing and setting targets for these resilience factors while being conscious of the trade-offs that need to be made. Putting together collaborative strategies and making budget decisions in pursuit of those targets. Learning from our experience and improving.

Adaptability is a particular challenge. To manage risks we need to be able to adapt. To adapt we need to innovate. To innovate we need to take risks. So, to manage risks we need to take risks!

Resilience is an imperative. We need it to thrive when turbulence has become a new normal, with climate change and disruptive technological changes. When globally politics has become more pluricentric, fiscally volatile and polarized, and when institutional complexity grows with longer supply chains, thicker regulations and internal policy guidelines, and more complex stakeholder networks.

The Treasury has just released a Discussion paper Resilience and Future Wellbeing: The start of a conversation on improving the risk management and resilience of the Living Standards Capitals. It is meant as a starting point for an open conversation between risk practitioners and policy-makers across government, as well as iwi and Māori community representatives, researchers across different disciplines, think tanks, not-for-profit organisations and wider civil society representatives, on how to better incorporate risk management and resilience building into public policy. It starts an exploration of possible institutional arrangements that can support a more proactive, coordinated, and evidence-based approach to risk management and resilience building.

Reactions and suggestions for next steps should be sent to ken.warren@treasury.govt.nz

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