Highlights from PwC’s 27th Annual Global CEO Survey: 'Thriving in an age of continuous reinvention'
As existential threats converge, many companies are taking steps to reinvent themselves. Is it enough? And what will it take to succeed?
The following passages are excerpts from PWC's 27th Annual Global CEO Survey which you can read in full here. We've picked out the most pertinent info related to climate issues.
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Twelve months ago, we (PWC) reported that nearly 40% of global CEOs believed their companies would no longer be viable in ten years’ time if they continued on their current path. The reinvention imperative this implied caught the attention of our clients, prompting thousands of conversations between PwC partners and CEOs around the world.
This year’s Global CEO Survey suggests that the vast majority of companies are already taking some steps towards reinvention. Yet even as CEOs attempt meaningful changes to their companies’ business models, they are even more concerned about their long-term viability. Although the 4,702 CEOs responding to this year’s survey were more optimistic about global economic growth than last year, 45% of them are still not confident that their companies would survive more than a decade on their current path.
Among the other key findings:
The impetus to reinvent is intensifying. CEOs expect more pressure over the next three years than they experienced over the previous five from technology, climate change and nearly every other megatrend affecting global business...
As the pressure to adapt rises, more CEOs will prioritise big moves to support business model reinvention. But although this is necessary, it’s rarely sufficient.
PwC research finds that top companies focus not only on their business model, but also on the operating and technology models that enable it—and they do so continuously. The mindset change and management challenges involved are huge. To win, leaders must consider a broader range of initiatives—and apply them in combination (for example, investing in service partnerships to close operating-model capability gaps and keep pace with technology advancements, which in turn allows the company to focus on what it does best). The good news is the reward for getting it right is also huge: winning companies capture a performance premium, measured as the combined effect of profit margin and revenue growth, adjusted by industry, worth more than 13 times that of their peers.
Another sign that the need to reinvent is rising is a notable increase in the pressure CEOs expect over the next three years from factors that influence business model change. Compared to the last five years, for example, CEOs expect changes associated with technology, customer preferences and climate change, among others, to have a far larger impact on the way they create, deliver and capture value. Only the impact of supply chain instability declines in relative terms as CEOs look ahead to the next three years.
Among the megatrends pressuring CEOs to reinvent themselves, none is more important than climate change. Here, CEOs report mixed success at meeting their stated objectives. Roughly two-thirds have efforts underway to improve energy efficiency; another 10% report completing such initiatives; and about half say they have work in progress to innovate climate-friendly products or services. CEOs in Western Europe are more likely to have energy efficiency and climate-oriented innovation initiatives in progress or completed. And CEOs everywhere are accepting lower hurdle rates for climate-friendly investments.
However, too many CEOs report having no plans for a range of other climate actions. For example, fewer than half of all respondents have incorporated climate risk into financial planning—and nearly one-third have no plans to do so. That may be because CEOs have:
already factored climate risk into their insurance profiles with respect to recent severe weather events, without necessarily considering the long-term, chronic impacts of climate change
only looked at what’s within their own corporate boundaries without fully considering the interdependencies in their supply chains.
Among the other climate actions that CEOs say they aren’t likely to take are two with big societal implications. The first, upskilling or reskilling the workforce, is an important part of ensuring a just transition to a net-zero economy. The second, investing in nature-based climate solutions, will be vital if companies are to account for the surprisingly high dependence they have on nature. In fact, PwC estimates that 55% of global GDP—equivalent to about US$58 trillion—is moderately or highly dependent on nature.
Although more climate progress is required across the board, one particular blind spot may be nature-based climate solutions. The accelerating decline of natural ecosystems, and insufficient societal response, makes nature loss an increasingly urgent challenge that’s interrelated with climate change. PwC estimates that the overall value of listings most exposed to financial risk from nature dependence on 19 major stock exchanges is nearly US$45 trillion. It won’t be easy, but CEOs should look for possibilities to create nature-positive business models that don’t just mitigate risks and strengthen financial returns but also benefit society. Some companies may find opportunities to address climate priorities and nature priorities at once. For example, reforestation can help capture emissions while also enhancing biodiversity, directing capital to developing economies, and supporting indigenous peoples and local communities.
As CEOs establish priorities, many are seeing climate change as an industry disruptor containing distinct opportunities in addition to risks. Nearly one-third expect climate change to alter the way they create, deliver and capture value over the next three years—compared to less than one-quarter who said as much regarding the past five years. This may partly explain why 41% of CEOs, including over half of those at chemical companies, say their companies have set lower hurdle rates for climate-friendly investments than for other investments. Geographically, CEOs in Asia-Pacific are more likely than those elsewhere to have accepted lower hurdle rates, even though they were no more likely than CEOs elsewhere to report feeling highly or extremely exposed to climate change.
That’s consistent with the sentiment of investors in PwC’s Global Investor Survey 2023, two-thirds of whom say that companies should make expenditures that address environmental, social and governance (ESG) issues even if doing so reduces short-term profitability. Return requirements are critical inputs to corporate resource allocation decisions, so evidence that CEOs are flexing their expectations as they face up to the climate challenge is a hopeful sign of potential for progress. Related PwC research finds evidence, too, of a shift in private investor interest in green tech towards more emissions-intensive sectors.
Tip: Partner with your CFO on climate strategy. Given their traditional focus on long-term value and performance, CFOs are natural and trusted partners for CEOs, as they address matters such as resource allocation, long-term capital spending, or mergers and acquisitions (M&A) to build more sustainable business models. The CFO and the finance function also have a host of tools—for forecasting, budgeting, resource allocation and risk management, to name a few—that they can use to bring sustainability into the heart of strategy. That should be a boon to identifying which interventions will have the biggest impact on decarbonisation, social sustainability or nature. For CEOs seeking a faster-paced transformation through M&A, joint ventures and alliances, a partnership with the CFO can be especially fruitful—both in a grounded approach to valuation and in communicating value to investors.
The totality of this year’s survey results reflects an awareness among CEOs that they are navigating critical strategic inflection points, and feel a sense of urgency and a bias towards action. The data also suggest there’s a growing premium on leadership effectiveness to maintain energy, challenge the status quo and increase momentum.
As we enter an age of continuous reinvention, CEOs have unparalleled opportunities to reshape their organisations, and themselves, to thrive on disruption, and transform aspirations into realities.
You can read the full survey report here.
