What interconnected risk means for boards

Aerial view of a complex maze situated in a green field, showcasing intricate pathways and surrounding landscape.

In June, we attended The Reality of Everything symposium in Wellington. The event brought together speakers from climate science, energy, trade, food security, public finance, public health and insurance. The programme was wide-ranging, but a common theme emerged: many of the pressures affecting New Zealand organisations and communities are becoming increasingly connected.

This is a useful governance lens. Rising insurance costs, trade uncertainty, energy dependence, climate-related disruption and food system vulnerability may appear in different parts of the board agenda.

In practice, these issues can interact in ways that affect strategy, operations, capital planning and stakeholder expectations. A weather event can affect infrastructure, insurance, supply chains and staff. A trade disruption can affect freight, fuel, fertiliser and market access. A shift in insurance availability can affect asset values, lending and investment decisions.

The symposium reinforced the importance of understanding how external conditions are changing, where risks connect, and which organisational assumptions should be tested.

Climate change was a significant focus of the symposium, but the discussion kept returning to the way physical, economic and social risks interact. The strategies and risk-monitoring practices built for a more stable era now face risks that no longer sit in separate boxes. These risks can arrive together, increasingly correlated and reinforcing one another.

The governance task is to understand which risks are most material, how they compound, and whether the assumptions behind the organisation’s strategy, capital allocation and operating model remain valid hold in an uncertain future.

Many boards already receive reporting across a range of risk categories. The harder question is whether those reports help directors see dependencies, flow-on effects and points of fragility.

Trade uncertainty is now part of the operating context

Hillmaré Schulze, of BERL, argued that uncertainty has become a defining feature of global trade. Tariff volatility, shifting trade policy, longer clearance times and additional compliance obligations are changing market dynamics and increasing the cost of doing business.

The picture is mixed in New Zealand. Trade performance has remained relatively robust, and existing free trade agreements provide an important platform. Around 70% of New Zealand’s exports go to free trade agreement partners. These relationships matter for a small, exposed economy that relies heavily on international markets and sea freight.

At the same time, resilience cannot be assumed. New Zealand’s export profile remains concentrated and global policy shifts can alter market conditions quickly. Changes to United States tariffs, new customs costs for low-value imports and shifts in demand in key markets may create both risks and opportunities, particularly for small and medium-sized exporters. With almost all New Zealand trade moving by sea, disruption to shipping routes, port access or freight costs can also flow quickly into business costs and continuity.

The practical question is how well the organisation can adapt as conditions change. Management should be able to explain its exposure to tariffs, freight and customs costs, customer demand, supplier concentration and alternative market opportunities. It should also be able to explain where diversification, critical relationships or backup capacity are needed.

Efficiency and resilience need to be tested together

A recurring theme across the symposium was that systems designed for efficiency may not always be resilient under stress. Supply chains, transport networks, energy systems, insurance markets and food production have often been shaped by assumptions of stability, affordability and reliable access. Those assumptions are becoming less reliable.

Many organisations have spent years improving efficiency through lean inventory, concentrated suppliers, outsourcing and tight cost control. These approaches can strengthen performance in stable conditions but create exposure where there is little redundancy or limited optionality.

Efficiency remains important, but boards need to understand where efficiency gains may have increased exposure. In some cases, resilience may require investment that is difficult to justify through short-term financial metrics alone, such as additional suppliers, stock buffers, revised insurance arrangements or longer-term partnerships. The governance judgement is to distinguish between unnecessary duplication and prudent backup capacity.

A useful board question is: Where have we optimised for cost or speed in ways that could reduce our ability to respond to disruption?

Food, energy and insurance have direct governance implications

Several sessions showed how system-level issues can quickly become board-level concerns.

Dr Catherine Knight’s presentation on national food security challenged the assumption that New Zealand’s food-producing status makes it automatically food secure. New Zealand produces large volumes of food, but still relies on imported staples and critical inputs such as fuel, fertiliser and machinery.

Some food production is also shaped by export demand and animal feed requirements, rather than domestic food security. Disruption to critical inputs can flow through to production, prices, supply chains and communities.

Professor Robert McLachlan’s session on energy realities highlighted the continued dependence of modern economies on fossil fuels, particularly for transport and other hard-to-abate sectors. Energy sits underneath much of what organisations rely on: freight, commuting, production, construction, food distribution and access to markets. For boards, energy transition is therefore relevant to emissions, cost, continuity, infrastructure, supply chain resilience and long-term investment decisions.

Emeritus Professor Jonathan Boston’s session on insurance retreat connected climate-related physical risk to property values, lending, public infrastructure and household security. He noted that insurance acts as a shock absorber by spreading financial loss and enabling faster recovery. As premiums rise or cover becomes harder to obtain in higher-risk locations, more risk sits with households, businesses, lenders, councils and central government.

Boston also highlighted the wider economic implications of insurance retreat, including pressure on asset values and the need for policy responses that maintain insurance availability and affordability.

These are practical governance issues affecting asset management, capital expenditure, business continuity, risk appetite, stakeholder expectations and long-term viability.

Boards need better questions

The practical challenge is to test the assumptions that sit behind the data. Risk reporting should help directors understand individual risks, dependencies, second-order impacts and the organisation’s capacity to respond if conditions change quickly.

Useful questions include:

- What external assumptions underpin our current strategy?

- Which of our risks are correlated and likely to crystallise together rather than one at a time?
- Where are we exposed to concentrated suppliers, markets, locations or infrastructure?
- How would rising insurance costs or reduced insurance availability affect our assets, customers, staff or communities?
- What would happen if a key input became delayed, scarce or materially more expensive?
- Where might disruption create opportunities as well as risks?

These questions are relevant to strategy, audit and risk, capital allocation, stakeholder engagement and long-term performance.

They help boards strengthen risk management, test plausible scenarios and make better decisions about investment, resilience and trade-offs before risks crystallise.

Andrew Lindsay is a senior financial services executive and board director with extensive international experience in governance, risk, regulation and organisational transformation.