- ESG and corporate purpose top the CEO agenda – key part of appeal to employees
- Confidence is back to pre-pandemic levels
- Climate is top of mind – hopes are that COP26 will add urgency to debate
- Cyber, regulation, supply chains are Australian CEOs’ key ‘risks to growth’
Environmental, Social, and Governance (ESG) issues and corporate purpose have risen up the priority list among Australian and global CEOs, KPMG’s annual survey of international business leaders reveals.
The KPMG 2021 CEO Outlook, a study of 1,300 CEOs across 12 countries, finds that corporate purpose is increasingly used as the guiding framework for key business decisions in the COVID-19 era, particularly in Australia. 94 percent of CEOs in this country and 86 percent of their global counterparts said that following through with corporate purpose commitments will shape their capital allocation, while almost all Australian leaders surveyed (98 percent) said purpose drove financial performance.
Corporate purpose was also a key part of Australian businesses’ appeal to their workforces – 86 percent of CEOs here said that purpose was a key part of their ‘employee value proposition’. A similar number said purpose was central to building their brand reputation and customer relationships.
The rise of ‘stakeholder capitalism’ was further demonstrated by the finding that a majority (60 percent Australian, 64 percent global) said their main objective was to embed their purpose into everything they do in order to create long-term value for all stakeholders. Second priority was to improve society and only third (16 percent Australian, 13 percent global) was to increase returns for shareholders.
Overall, confidence levels were back at pre-pandemic levels, with over 80 percent of Australian CEOs expressing confidence in growth prospects for their company, sector and country in the next 3 years. Confidence levels were lower – 62 percent – for the global economy.
Australian CEOs nominated cyber, regulation, and supply chain resilience as their key risks to growth.
Climate was also top of mind, with 84 percent of Australian CEOs (75 percent global) saying the November COP26 meeting must inject necessary urgency into the climate debate, and 77 percent of leaders both here and overseas believing government stimulus was needed to turbo-charge business climate change investments.
Key findings included:
- Most CEOs said they were experiencing increasing demand for ESG reporting and transparency, (70 percent Australian, 58 percent global). While this was mostly from investors (49 percent Australian, 52 percent global), regulators were a much closer second driver here than elsewhere (43 percent Australian, 29 percent global).
- Against this backdrop, 42 percent of global CEOs (36 percent Australian) admitted they were ‘struggling to articulate a compelling ESG story’ to their stakeholders.
- A majority (58 percent Australian, 71 percent global) felt CEOs would increasingly be held personally responsible for driving progress on social issues, while 66 percent of Australian CEOs (56 percent global) feared that with public, investor and government expectations on diversity, equity and inclusion rising so fast, they would struggle to meet those expectations.
- Nearly a third of Australian CEOs (32 percent) said they were looking to invest more than 10 percent of their companies’ revenues on ESG initiatives over the next three years. 84 percent of CEOs here (75 percent global) said their companies’ digital and ESG investment are inextricably linked.
- Almost half of Australian CEOs (48 percent) believed “our ESG programs boost our financial performance”. This was 37 percent globally. Australian companies also expected to be further advanced on having their ESG data externally assured. (Australian 72 percent, global 55 percent)
- Interestingly, more Australian CEOs (46 percent) than global (30 percent) said their pay was based at least partly on ESG issues as well as financial performance – while 70 percent believed they were being evaluated by key stakeholders ‘through an ESG lens’.
- Most were confident in their company prospects over next 3 years (Australian 84 percent, global 87 percent), although Australian CEOs were a little less confident on growth levels, with most predicting 2.5 percent or less, and 10 percent of leaders seeing zero or negative growth.
- Similarly on headcount, most Australian CEOs believed staff levels would grow by less than 5 percent, which was slightly lower than global counterparts.
- In terms of growth strategies, these were mostly inorganic. 76 percent of Australian CEOs said Joint Ventures, M&A deals or strategic alliances were the paths to growth, with only 24 percent nominating organic growth. Increasing investment in disruption, detection and innovation processes were the top organic way to increase growth (70 percent Australian, 67 percent global)
Key risks to growth
- The three top risks to growth over the next 3 years for Australian CEOs were cyber (22 percent), regulatory (20 percent) and supply chain (12 percent), while global responses were much more evenly spread, with no single answer over 12 percent.
- Tax issues were also seen as a concern – CEOs believed that to fund the economic recovery from the pandemic there was a significant risk of governments increasing regulation and new tax rules, which could hinder revenues. 74 percent of Australian CEOs (77 percent global) said the OECD’s new plan for a global minimum tax rate was a ‘significant concern’ for their company’s growth plans.
- 72 percent of Australian and 66 percent of global CEOs said they were feeling under more pressure to report on company tax contributions.
- 64 percent of Australian and 58 percent global CEOs said they were well-prepared for a cyber attack.
- Notably, 78 percent of Australian and 65 percent global CEOs said they had a plan to deal with a ransomware attack.
- Top operational priority, here and globally was enhancing digitisation and connectivity of all functional areas. Australian CEOs’ second priority was enhancing cyber security.
- A large majority, (76 percent Australian, 78 percent global) said they needed to be quicker to shift investment to digital opportunities and divest businesses with digital obsolescence.
- Most (82 percent Australian, 76 percent global) CEOs admitted the pace of digital transformation during the pandemic was not sustainable without first addressing burnout amongst their workforce.
- In terms of enhancing digital resilience, the top 3 ways in Australia were: building a secure cloud-based technology (52 percent); enhanced cyber security skills (48 percent); and improving supply chain resilience and governance around operational resilience (both 44 percent).
- 58 percent of Australian CEOs said their supply chains had been under increasing stress over last 18 months and the biggest impact of the Covid-19 era in 3 years’ time would have been on supply chain resilience.
- The clear top answer in terms of the benefit of being a diverse and inclusive organisation was recruitment of Gen Z/millennials (32 percent Australian, 29 percent global). Better decision-making due to diverse perspectives was 2nd globally (16 percent) but only 4th in Australia (10 percent).
- 78 percent of Australian and 60 percent global CEOs said they were spending more in capital investment via buying new technology than by developing the workforce’s skills and capabilities. A minority of CEOs (Australian 22 percent, global 40 percent) said the reverse – and were focusing more capital investment in people development.
- In terms of the best ways to keep employees motivated, Australian CEOs’ top 3 responses were digital training/upskilling (48 percent); focusing on mental health/wellbeing (42 percent); and listening to staff’s ideas and needs (40 percent). Globally the answers were similar.
Andrew Yates, CEO of KPMG Australia, said: “ESG issues have risen sharply up the business priority list since the pandemic began, along with the importance of corporate purpose. Purpose is closely connected to a company’s stated role in society and commits them to acting in a sustainable manner that creates long-term value for their stakeholders. Customers and employees want to know that the companies they buy from, or work for, have society’s best interests at heart.”
“In the post-pandemic era, successful CEOs will be those that can connect a trusted purpose with digital agility — and it is encouraging to see that 84 percent of Australian CEOs are on the right track, saying that their digital and ESG investment are inextricably linked. While the Covid-19 era has turbo-charged many companies’ investment in digital, it is notable that 82 percent acknowledged that the current pace of digital transformation during the pandemic is not sustainable without first addressing burnout amongst their workforce. Staff welfare and mental health must be paramount.
“Cyber issues are also top of the risk list in Australia and enhancing cyber security is a key priority. It is encouraging to see most feel prepared for an attack, given the ever-increasing risks in this area.
“But while confidence levels for the next three years are generally quite high, the survey reveals concerns over factors which could damage growth. Supply chains in the Covid-19 era have clearly come under pressure, while in Australia regulation seems top of mind, both as a risk to growth and a driving force behind much of the greater expectations on businesses for greater transparency. Tax regulations also loom large for many businesses as governments have to fund the pandemic deficits. Policymakers will need to tread a fine line in balancing debt repayment with not overburdening businesses and cruelling economic recovery.”
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About the survey
The KPMG 2021 CEO Outlook asked 1,325 CEOs from among the world’s most influential companies to provide their 3-year outlook on the economic and business landscape, as well the impact that the on-going Covid-19 pandemic will have on their organizations' future. All respondents have annual revenue over US$500M and a third of the companies surveyed have more than US$10B in annual revenue.
The survey was conducted June 29 – August 6 and included leaders from 11 key markets (Australia, Canada, China, France, Germany, India, Italy, Japan, Spain, UK and US) and 11 key industry sectors (asset management, automotive, banking, consumer and retail, energy, infrastructure, insurance, life sciences, manufacturing, technology, and telecommunications).