CEOs Know ‘Business-As-Usual’ Isn’t Working, But Many Are Too Tapped Out to Change

21 01 2023

Image credits: Marvin Meyer and Ryoji Iwata via Unsplash

Executives view climate change as both a short- and long-term threat, but most are failing to address it proactively, PwC CEO Survey shows. By Mary Mazzoni from Triplepundit.com • Reposted: January 21, 2023

We’ve heard it for years — “business-as-usual isn’t working” — and the annual PwC CEO Survey indicates executives are well aware. Nearly 40 percent of more than 4,000 responding global CEOs think their companies will no longer be economically viable in a decade if they continue down their current path. 

That’s a pretty big deal. Yet while one would think such a grim consensus would spur an immediate push for change, many executives told PwC they don’t have nearly enough time to think and talk about the future. Maintaining current operating performance consumed the biggest share of CEOs’ time last year, according to the survey, and executives admitted they’d rather spend more time evolving their companies’ strategies to meet future demands.

Findings like these reflect the “dual imperative” facing CEOs around the world as they look to reinvent their businesses for the future while  navigating a laundry list of daunting challenges in the present day, the PwC CEO Survey found. “If organizations are not only to thrive but survive the next few years, they must carefully balance the dual imperative of mitigating short-term risks and operational demands with long-term outcomes — as businesses that don’t transform, won’t be viable,” Bob Moritz, global chairman of PwC, said in a statement. 

So, will business leaders act to save themselves, or will they be too busy with next quarter’s P&L? Let’s take a closer look inside the survey to see what executives are saying — and what it could mean for the future. 

Executives view climate change as both a short- and long-term threat, but most are failing to address it proactively, PwC CEO Survey shows 

While managing climate risk is a long-term challenge that continues to vex executives, the PwC CEO Survey indicates many are also concerned about the effects of climate change in the here and now. 

Most of the CEOs surveyed expect their businesses to feel some degree of impact from climate change within the next 12 months. About half predict the effects of climate change will have a “moderate,” “large” or “very large” impact on their cost profiles. More than 40 percent anticipate impacts to their supply chains, while around a quarter are worried about climate-related damage to their physical assets.

Their concerns are warranted: The 10 most significant climate-related disasters to strike the world last year caused more than $3 billion worth of damage each, according to the World Economic Forum

Still, the way they respond could use some work. “Deeper statistical analysis of the survey shows that the CEOs who feel most exposed to climate change are more likely to take action to address it,” PwC researchers observed.

“This kind of reactive approach is understandable — when your house is in the path of a forest fire, you reach for the hose — but it creates risks of its own,” they continued. “Combating climate change requires a coordinated, long-term plan. It won’t be solved if the only companies working on it are those that face immediate financial impact.”

Beyond issues with reactivity, the researchers underscore that they “don’t know how much” the actions most often taken by businesses — such as decarbonization initiatives and moves to innovate more climate-friendly products and services — “will move the needle, particularly in the near-term, which, in light of emissions already in the atmosphere, promises continued warming under virtually every scenario.”

While it remains murky if business actions will do anything to curb their climate risk in the short term, the researchers warn that many long-term corporate climate strategies are also incomplete or less effective than they could be — setting the stage for even more serious risk in the years to come. 

More than half of all CEOs surveyed, including 70 percent of those at U.S. companies, say their teams have no plans to apply an internal carbon price to decision-making, “even though doing so could help them account for considerations like taxes and incentives, and clarify strategic trade-offs,” the researchers found. Many are also dropping the ball on reporting, as another recent PwC survey found that 87 percent of global investors think corporate reporting contains unsubstantiated sustainability claims, often referred to as “greenwashing.”

CEOs predict declining global economic growth, but is that really a bad thing? 

Nearly three-quarters (73 percent) of CEOs believe global economic growth will decline over the next 12 months. This is a marked departure from recent years, as more than 75 percent of respondents to the 2020 and 2021 iterations of the PwC CEO Survey said they thought economic growth would improve. It’s also the most pessimistic CEOs have been regarding global economic growth since the PwC CEO Survey began asking this question 12 years ago. 

This comes as no major shock, as other recent polling indicates CEOs around the world are bracing for a recession in 2023. Still, it begs a few questions: Is a slowdown in economic growth inevitable, and is it even a bad thing? 

In the decades since economist Milton Friedman declared that the social responsibility of business is to increase profits for shareholders, conventional reason has dictated that the ultimate marker of business health is to grow bigger and bigger every year, with solid shareholder returns that climb on a quarterly basis. 

Yet study after study indicates that the never-ending pursuit of more consumption, more profit and more money does not equate to better quality of life across the economy — and the spoils of rugged capitalism are not shared equally. In the U.S., for example, CEO pay has grown by a staggering 1,460 percent since 1978, while median worker pay has not even kept pace with inflation, increasing by a mere 18 percent over the same period. U.S. CEOs were paid 399 times as much as a typical worker in 2021. 

So, if the dogged pursuit of “more, more, more” does not increase quality of life for the many, and workers by and large find themselves more wage-poor than their parents were, who really benefits from eternal economic growth as a marker of success? Even businesses stand to lose out as CEOs cash their bloated paychecks while predicting their companies will be belly-up within a decade. 

Against a backdrop like this, it makes sense that conversations around degrowth are having a major moment in mainstream business circles. As the name implies, degrowth calls for intentional reductions in production and consumption to stay within the boundaries of a resource-constrained world — particularly in rich countries, allowing developing countries to have a greater share of the economic pie (and the global carbon budget). 

While respondents to the PwC CEO Survey stop far short of advocating for strategic degrowth, they don’t plan to cope with the impending recession in the way many might expect. While over half of responding CEOs say they are moving to cut operating costs and raise prices, the majority (60 percent) say they do not plan to reduce the size of their workforce in the next 12 months, and 80 percent say they have no plans to reduce compensation. 

Still, it makes sense that predictions about the worst recession in a century would be preoccupying for executives, but as Moritz of PwC observed, those that don’t keep the future in mind are destined for failure. This type of push and pull between long-term longevity and short-term profit is one that has defined conversations around stakeholder capitalism and corporate responsibility for as long as they’ve existed. Parsing through these survey responses, it could be that Mother Nature — and the markets — will finally force executives’ hands, pushing into fruition something that for decades was simply words. 

To see the original post, follow this link. https://www.triplepundit.com/story/2023/pwc-ceo-survey-2023/764296

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