According to the Global CEO Outlook survey from consulting giant KPMG, CEOs are more aware than ever of the potential threats of climate change, new technologies and geopolitical forces.
Environmental/climate change risk has been rated as the number one threat to organisations, according to CEOs, with 28 per cent believing it could affect their bottom line.
Australian-based Adrian King, global chair of sustainability, climate change and ESG services at KPMG, believes a lack of government policies is keeping CEOs awake at night.
“I suspect the reason why climate change is the number one risk for CEOs in Australia is that a lack of policy for a pathway to achieve our national contribution to the Paris target is not encouraging new investment in low emissions technologies in areas like energy, infrastructure and electric vehicles and so is creating market disruption,” said Mr King.
The flow-on effect of this is becoming harder for businesses with poor environmental standards to secure loans.
“Banks and investors are now tilting away from companies that are expected to have a significant climate risk exposure and are unable to demonstrate a comprehensive strategy to manage these risks,” said Mr King.
Other risks to businesses
CEOs are becoming increasingly concerned with emerging/disruptive technologies to their industry, which rates as the second-biggest concern among CEOs. This is followed by operational risk, which has doubled when compared with the 2018 survey.
KPMG CEO Gary Wingrove believes major political factors such as the banking royal commission has changed the CEOs’ thinking.
“I believe the rise in prominence of risk in these findings reflects a rise in profile of the risk management function in Australia. No doubt the backdrop of the royal commission has played a part here, and risk is having now to ‘re-imagine’ its role as counsel to CEOs,” said Mr Wingrove.
What’s happening overseas?
Internationally, CEOs are concerned with a return to territorialism, as issues such as Brexit continue to be an economic disruption.
Australian CEOs are more concerned with the ongoing US-China trade war than Brexit. They are more wary of expanding into markets that form part of the Belt and Road Initiative – China’s economic strategy that links Europe to China across countries in Eurasia and the Indian Ocean – than their global counterparts.
Brendan Rynne, KPMG Australia’s chief economist, is not surprised that Australian CEOs fear a trade war.
“It is not surprising Australian CEOs are very concerned about the ongoing US-China trade tensions – our own research has shown the potential damage this could cause us. Global supply chains, multi-country production processes and the importance of services exports all add to the complexity of how a trade war could play out in practice today,” said Mr Rynne.
“Our government will need to continue to steer a very careful path between our largest trading partner and our defence guarantor,” said Mr Rynne.