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Acting through disruption

Chapter six

As disruption creates unexpected challenges, or presents unforeseen opportunities, holding to a chosen path becomes difficult – or no longer valid. We will need to be flexible and resilient in the face of a changing context to hold true to the outcomes we are seeking to achieve rather than the path we have taken. The scale and nature of the challenges we are facing will take transformational investment and change. We will not be able to apply business-as-usual approaches to delivering.

Capability 4: Sophisticated partnerships and collective action

Kuaka travel in flocks. To ensure their collective survival on their non-stop journey of up to 13,000 kilometres, they take turns to lead and to support. Navigating through an uncertain future is something none of us can do alone. The challenges we are facing cut across whānau, communities, businesses, and government. We will need the strengths and capabilities that each of them brings. This calls for deeper and more sophisticated partnering.

Partnership is a key principle of Te Tiriti o Waitangi (Te Tiriti) and any discussion of partnership in Aotearoa starts with the partnership between Māori and the Crown. There is continued and growing focus and effort, but the criticism remains that approaches often default to being grounded in te ao Pākehā. While the government has made significant recent strides in collaborating, it has stumbled at truly sharing the decision rights – often reverting to more traditional ‘consultation’ modes of operating. Delivering collaboratively has been challenging. A common te reo Māori translation for partnership is mahitahi, which refers to working together, collaborating or working in partnership. Without that to and fro of working together, a partnership is merely hypothetical. Real partnership is driven by activity and doing things together.

Effective partnership in a Te Tiriti context is typified by many things, including that they are authentically developed; take time and a commitment to resource appropriately; require engagement on a case-by-case basis (because Māori are not homogenous); and are based on unity in purpose, rather than uniformity of approach. Despite being a nation founded in a form of co-governance, our collective inability to see past poorly informed rhetoric means that we are currently being denied the opportunity to realise the value it offers. The Three Waters co-governance framework sparked national debate and it became clear we are still not speaking the same language. Co-delivery is critical to Māori in partnerships with agencies or entities, as it takes Māori participation from an advisory or guidance capacity to one that has a tangible impact.

When we broaden our lens, we see maturing cross-sector partnering arrangements and capabilities. More sophisticated, flexible, multi-partner arrangements are forging new ground such as the Te Ahu a Turanga Alliance, industry transformation plans and the Aotearoa Circle.50 Outside of these, our partnering models tend to default to those we know well, founded in the roles of buyers and suppliers. This can be counterproductive. Traditional contracting methods have repeatedly created a false sense of security while failing to deliver outcomes. Price-focused procurement creates a race to the bottom that does not reflect the risk and the effort to deliver the outcomes. Ultimately, truly sharing decision rights, risk and resources is uncomfortable (and hard).

We need to make space for a new dynamic. When in flight, the kuaka are led by kahukura. It was once told that when kuaka fly into Aotearoa they arrive in a swirling mass. Within the mass there are small groups, each with a leader whose role it is to cleave the air and provide initial lift for those in their flock who are following. These are the kahukura, making the space for movement and change. This requires creating the space for collaboration – cleaving the air – and knowing when to get out of the way – to enable the swirling mass.

Covid-19 taught the government a lot about getting out of the way. In 2019 we saw community-based entities having a much greater impact on managing the vaccination rates of their people than the government could. United by the very real and clear goal of protecting lives, the government learned to trust, resource and enable communities to make the decisions that were best for them. 

“We ought not to be too romantic about our ability to maintain trust and confidence with all communities. We were romantic about the ability of public institutions to deliver the Covid-19 response when in fact there were marginalised groups and people in the community that were better placed to deliver the response. Quickly, we mandated and resourced others to engage with those communities and got out of the way. We need to increasingly do this and do it sooner.” Peter Hughes – Public Service Commissioner, Te Kawa Mataaho Public Service Commission.

Collectively we need to get comfortable holding accountability without ownership to partner authentically, supporting partnerships with governance models rather than contracting mechanisms. This will also enable a broader range of community organisations to be part of our solutions without requiring them to formalise structures and invest in non-core capabilities, like contract management, to meet procurement requirements.

We can create spaces for a new partnership dynamic by leveraging improved and sophisticated commissioning models that enable risk and reward sharing over the life of the partnership. Commissioning models need to encourage the government to retain ultimate accountability while delegating responsibility for delivery and put in place evaluation and monitoring mechanisms to ensure ongoing delivery value. A wider definition of the value and outcomes we seek through our spending is part of this. The government’s existing social procurement policy is a strong starting point, but further embedding social outcomes into the government’s annual procurement spend of over $50 billion is required to deliver economic, social and environmental outcomes and actively shape the market.51 There is an opportunity for the government and businesses to increasingly pick up this powerful lever and apply it to their partnering and purchasing approaches, too.

We are a small country, and we cannot do it all on our own. We should expand our thinking when it comes to potential collaborators, attracting offshore partners and investment to enable access to the capabilities we need that don’t exist locally. Whilst our reliance on our distinct cultural uniqueness serves us well, the global megatrends that buffet us mean there is much more for us to learn – and capitalise on – by looking outwards. It will make sense to work with others who are successfully forging a path already, and who can provide access to promising tools and solutions while we build the local dimensions and capability. The InterRAI tool to assess older people’s home and community support needs used by District Health Boards is a good example. The tool itself was developed offshore and used in more than 30 countries. Manatū Hauora and the Central Region’s Technical Advisory Services (CTAS) worked with InterRAI to develop and test a culturally appropriate version of the assessment model – taking the global and making it local to better provide equitable access to health services and health outcomes in Aotearoa.52

Maturing our partnering and co-delivery capability will achieve more inclusive and sustained outcomes. We will bring the diversity of thinking and capabilities of all of Aotearoa – augmented by capability beyond our borders – to solve our most pressing challenges and create more enduring and responsive solutions as a result.

Spotlight: Partnering to manage risk and inequity in Aotearoa

Increasing risk across multiple domains is fundamentally changing the way the insurance industry operates, and the impacts are far-reaching. We have seen insurers increase premiums for earthquake-prone homes and signal a clear intent for home insurance premiums to rise over time to cover growing underlying risks such as climate change and extreme weather events. 53 Government agencies are struggling to sufficiently insure their assets, while the continued growth of certain communities is being hindered by shrinking insurance policies. The full retreat of insurers from some communities is not a far-fetched conclusion, it is only a matter of time.54 Intervention and regulation will only succeed with meaningful industry and community involvement.

Globally, insurers have started to explore more affordable insurance products for their customers – on-demand insurance (car insurance per kilometre) and micro-insurance for specific cover are two examples. In Kenya and Rwanda, Kilimo Salama offers a low-cost policy covering the cost of a farmer’s crop only in the event of a loss due to extreme drought or excessive rain.55

Given recent weather events, flood-prone areas in Aotearoa could be the next area of insurance contention. Only modest sea level rise is needed for significant flooding to occur, and current infrastructure is not well suited to withstand or mitigate the impact of flood events like those in early 2023. Modelling shows approximately 10,230 properties within Auckland, Wellington, Christchurch, and Dunedin will likely face insurance retreat by 2050.56

Insurer retreat poses affordability and equity challenges and will severely restrict the growth of areas, particularly since insurance is a requirement for residential mortgages in Aotearoa. Besides economic and social consequences, there are cultural impacts and the unique connection to whenua for our Māori populations to consider. These consequences are inherently tied to the management and distribution of risk in our communities. 

The reluctance of private providers to insure at-risk markets has prompted the government to consider implementing both flood and income insurance schemes. Currently under consideration are government insurance schemes that would further transfer risk to the state (the government Flood Insurance Scheme and Income Insurance Scheme), over and above the risk transfer currently enabled through our social support system.57 The public sector already provides broad, basic natural disaster coverage through Toka Tu Ake EQC.

Even with the proposed schemes, there is a residual burden of risk that sits with individuals and whānau. The problem requires insurers to lean in, and we will only get there through innovation and true, long-term partnership between the public and private sectors.

Deloitte Partner, Adithi Pandit on the three strategic capabilities to act through disruptive times

Capability 5: Networked responses to shocks

In recent years disruptive shocks and events have come from weather, natural disasters, geopolitical tensions, inter-state war, economic crises, terrorism, cyber risk, and a health pandemic. They have become our new normal, and OECD research suggests we are likely to experience severe shocks more often, driven by global interdependence, climate change, global politics, and other rapidly changing drivers.58

For some groups and communities, shocks are compounding. Our most disadvantaged groups are most exposed to the increasing risks we are facing and have the least access to the economic and social buffers that will help them to absorb or bounce back from those shocks. Deloitte’s 2017 State of the State on household resilience revealed that low and middle-income New Zealanders are most likely to be more vulnerable to shocks and disruptions. The situation has not improved. 32% of respondents to the June 2022 Household Economic Survey said that their income was not enough, or only just enough, to meet their everyday needs.59 Underinsurance (measured as the gap between the value of an asset and how much it is insured for) is a problem. Aotearoa ranks 26th out of 56 OECD countries for insurance spending, at 3% of GDP, compared to the OECD average of 9.4%.60  18% of respondents to the 2023 Growing Up in New Zealand survey could not afford home contents insurance.61 These households are not in a position to pay unexpected bills. We need to understand the risks to – and resilience of – our communities.

We have learned much about responding to shocks and the value of a multi-partner response in an emergency. Covid-19 demonstrated that while the departmental structure of government can be effective for business as usual, planning for and responding to shocks requires a collaborative and holistic approach. This means a response across multiple agencies, but also businesses and communities. During Covid-19, and again during Cyclone Gabrielle, Māori were one of the most disproportionately impacted groups. This is because the most vulnerable are more likely to have poor access to critical resources to manage the impact of adverse events. During these two events, Māori communities have rallied together to aid each other where they could with a true sense of community and togetherness. Our response to shocks – from resilience to recovery – must be a networked one.

“The default mechanism for Government is to centralise a response and provide a universal response, but a significant event doesn’t impact people equitably. Cyclone Gabrielle is a great example – Māori were impacted differently from others. The tried-and-true mechanisms of resolve don’t work in a crisis if you are taking an equity lens. Instead, good decision making comes down to who holds the most knowledge and the greatest connection to the people who will benefit from the decisions being made. In the Cyclone Gabrielle instance, iwi and hapū were best equipped to make choices for their whānau and communities.” – Research interview  

We need to reframe how we conceptualise our operating model for managing through shocks. We bring together capabilities across organisations, sectors, and systems to respond to major disruptions. While we have been successful in ramping up rapidly, thinking about these capabilities as a networked operating model – beyond organisational bounds – better allows us to optimise and evolve our preparedness, response, recovery, and beyond into flourishing.

When shocks happen, there is often a flood of information from multiple sources and an initial lack of clarity around who the decision-makers are, and what the chain of command looks like. Standing up cross-agency or cross-sector collaborations at short notice remains extremely difficult and challenging. Speed of decision-making is sometimes more important than making the right decision, as long as you can pivot quickly and course correct.

We can learn from Covid-19 and the constantly evolving landscape of decision-makers and leadership structures in place. We need to get clarity on the domains of decision-making and who holds decision-making rights, supporting that with rapidly flowing resources to the group – public sector or community – best placed to make choices and act. We need to lift beyond organisational boundaries to manage resource pools flexibly, moving generalist and specialist resources to where they need to be.

Information is key. Investing in the data and a ‘clearing house’ for information and insight that can operate as a central nerve centre, source of truth and control room for the network will enable fast decisions. We need to create the feedback loops and the culture to learn – as the context changes, as new information comes to light, and as mistakes are made. This includes training and rehearsing the capabilities required to respond to shocks. Central to all of this is capacity planning. Business-as-usual efficiency is in tension with the capacity to be ready for and respond to the unexpected. But business-as-usual efficiency is a fallacy when shocks are our normal operating environment.

We will also need to manage risk holistically and in a people-centred way. Understanding the risk to different groups of people – not just the aggregate – will help us to strengthen resilience and support in a targeted way. Otherwise, we will have blind spots, and this increases the possibility that compounding risk for small communities will spill over into systemic risk through social polarisation and unrest. This also means managing the compounding impacts of mitigating shocks on our frontline responders so that we can sustain our critical frontline workforce in the long run.

Finally, managing through shocks requires us to build resilience at a broad level. Building our stocks and buffers to best withstand, absorb and bounce back from shocks is our greatest protection against uncertain disruptions. Building resources across many dimensions: from education, health and financial wellbeing to secure employment and improving accessibility and sufficiency of insurance, will help to manage shocks.

Spotlight: Queensland Reconstruction Authority

Following a series of unprecedented natural disasters, the Queensland State Government in 2011 established the Queensland Reconstruction Authority (QRA). While its headline focus was initially coordinating the biggest rebuilding effort in the state’s history, from the very beginning it had a mandate to improve community resilience and mitigate the impacts of future disasters.

The initiative was a success, and in 2015, the QRA was made a permanent part of the Queensland Government, now acting as the focal agency responsible for disaster recovery and resilience policy. It leads the development of the Queensland Strategy for Disaster Resilience, coordinates resilience outreach and investment, and has strengthened its role as a community builder – one of its key strategic objectives is building capacity in recovery and resilience through partnerships with community leaders.

While we have the National Emergency Management Agency (NEMA), there isn’t sufficient capacity in the emergency response system to sustain long-term recovery efforts associated with any one disaster. The recurring nature of significant events, and the likelihood there will be more, necessitates that we prioritise and resource our long-term response capability, as well as build greater connection across the system and capacity within the system to enable long term response management.

Capability 6: Catalysing private and public investment streams

Given the quantum of investment required to navigate the challenges we are facing, we need to ask ourselves how we might afford the cost of the future.

Taxation is one part of this. Our tax take – within our broad-based, low-rate tax framework – is broadly aligned with OECD countries globally and will be difficult to meaningfully increase without changes in taxation policy and settings. Solutions we could choose include re-prioritising existing spending within that tax take, seeking to increase the tax take within the current system, and materially altering our tax framework. In the context of a spectrum of public and political views, this is itself a case study in our capability to choose a shared pathway in the face of diverse viewpoints. A shared evidence base, understanding of implications and the ability to surface and evaluate trade-offs are necessary to hold an informed conversation with the public on choices that will have an impact on us and future generations.

“Most of our tax revenue comes from those that earn between 50-100K per year. That group makes up about 57% of our total tax revenue. There are only about 100,000 people that earn over $180K in New Zealand – there is only so much we can get from that group. You could take all of their income and you still wouldn’t do much fiscally. If we increase tax rates in the current system, it’s likely all we would get is the feeling of surprise and disappointment when it failed to deliver.” Robin Oliver – Director, Olivershaw Tax Consultancy.

Taxation can also play a secondary role as one government lever to incentivise (and disincentivise) behaviour. The public sector already does this in a number of ways, including social procurement (purchasing power), targeted tax relief and market regulation. Continued, clear and long-term signalling by the government can both attract investment and discourage behaviours that are detrimental long-term.

Public funding will never be unlimited, nor should it be the sole source of investment in our future. A greater focus however should be to catalyse private investment. Attracting wider sources of funding to the investments that we will need will be critical and is a growing focus globally. Sustainable investment vehicles bring private sector capital – and attention – to our challenges and opportunities. Here government can play the role of enabler: signalling what outcomes are important and where the gaps are.

“It’s more complicated to make strategic sustainable investment decisions in the absence of clarity and direction from the Government on domestic investment priorities and what constitutes ‘green’ or ‘transition’ activities and projects. The agreed direction of travel for Aotearoa is toward a low emissions economy.  Now we need to get specific about net zero investment plans for key sectors and industries.  This will help flesh out the opportunities for private capital to enable the transition.” Jo Kelly – Chief Executive, Centre for Sustainable Finance: Toitū Tahua

Aotearoa has made some progress in developing sustainable finance channels, yet considerable work remains to meet our fair share of contribution to climate action.62 Recent developments include the climate disclosure regime, the review of the Emissions Trading Scheme, and the inaugural issuance of $3 billion through the Sovereign Green Bond Programme.63 This issuance was similar in value to other first-time programmes from economies such as Singapore, Switzerland and Denmark. Demand for the deal reached $7.5 billion – indicating strong demand for further issuance.64 With the Climate Commission estimating an additional $34 billion of investment is required across key areas of the economy by 2035, there is still significant potential that we must unlock.65


Spotlight: Climate regulation in Aotearoa

In 2021, the Government passed legislation to make climate related disclosures mandatory for some large financial market institutions in Aotearoa. Prior to that the lack of regulation meant many institutions had little by way of clear climate commitments and inconsistently reported on climate impact and sustainability progress. The Productivity Commission’s report on New Zealand’s Low Emissions Economy found the lack of regulation was causing “an ongoing and systemic overvaluation of emissions-intensive activities."66

Aotearoa has a formalised commitment under the Paris Agreement to reduce its emissions by 50% (below 2005 levels) by 2030.67 This was increased from 30% in 2021, given the urgent progress we need to make as a globe to limit global warming to 1.5 degrees (in the context of lagging performance). Aotearoa has among the highest per person greenhouse gas (GHG) emissions in the world.68 Although in global terms it’s a relatively small share of global emissions, we cannot afford to over-value and under-deliver emissions reductions activities if we want to meet our Paris Agreement commitments and help to stem global warming.

Approximately 200 organisations are mandated by the new climate-related disclosures legislation. This includes large publicly listed companies, insurers, banks, non-bank deposit takers, investment managers, large Crown Financial institutions and overseas corporations where their NZ-based business is over the relevant threshold (there are several thresholds, generally: $1bn in total assets, income greater than $250m and/or securities with a combined value over $60m).69 Given the number, size and value of mandated organisations, the potential for catalysing positive sustainability behaviours to bring about measurable, positive climate impact via the disclosures scheme is significant.

The reporting framework, formally introduced from 1 January 2023, is structured around strategy, governance, risk management, and metrics and targets. While it will be some time before we can quantify the impact of the new regime, we are the first nation in the world to introduce climate reporting of this nature.70

The challenge now is building collective maturity when it comes to ESG reporting, and over time, scaling the requirements beyond the 200 organisations. Prior to the new scheme coming into effect, several local sectors lagged behind international counterparts when it came to sustainability reporting.71 Building the capability and optimising one’s operating model to report and deliver on sustainability commitments is a journey, and it won’t happen overnight.

Adithi Pandit

Partner – Strategy & Business Design

Cassandra Favager

Director - Strategy & Business Design