Reimagining the outcomes that matter

As we near the two-year mark of the pandemic, the global economy has rebounded from the depths of mid-2020. The IMF projects global GDP to grow 4.9% in 2022, a downtick from the 5.9% growth expected in 2021, but still formidable. The 4,446 CEOs from 89 countries and territories who responded to our 25th Annual Global CEO Survey display optimism about continued economic resilience.

Yet threats, uncertainties and tensions abound. The survey was in the field during the COP26 conference in Scotland, which convened world leaders to try to prevent the worst effects of climate change. PwC experts who attended were both impressed by executives’ commitment to rapid progress and aware that the captains of industry in Glasgow were a self-selected group that came prepared to take action. The question of how to bring others along looms large. Then, just two weeks after our survey closed, news of the Omicron variant reverberated around the world, raising fresh questions about the course of the pandemic and about society’s ability to continue the slow climb to normalcy. 

Our survey findings reflect these and other tensions. For example, just 22% of survey respondents have made net-zero commitments (though the largest companies in our sample are further along). CEOs are most worried about the potential for a cyberattack or macroeconomic shock to undermine the achievement of their company’s financial goals—the same goals that most executive compensation packages are still tied to. And they are less concerned about challenges, like climate change and social inequality, that appear to pose smaller immediate threats to revenue.

But our survey also provides a glimpse of what is possible when we reimagine the status quo. A case in point: the power of trust. We found that highly trusted companies are more likely to have made net-zero commitments and to have tied their CEO’s compensation to nonfinancial outcomes, such as employee engagement scores and gender diversity in the workforce. Correlation is not causation, and we’ll continue to explore these results. But at first blush, they suggest a relationship between trust and the ability to drive change—a means of moving beyond short-term, “it’s the next leader’s problem” thinking.

It’s an apt finding to spotlight as we commemorate our 25th year documenting CEO sentiment toward and reactions to transformative trends. During the dot-com bubble in 1998, we talked to chief executives about technology, from their personal use of the internet to the future of e-commerce; in 2003, we tracked the rise of corporate governance and enterprise risk management in the wake of financial scandal. We’ve also surveyed CEOs in moments of crisis—in 2008, as the global financial system collapsed, and last year, as we approached the one-year mark of the pandemic—to gauge the impact on strategy and growth.

The challenges facing CEOs today are no less daunting. Increasingly, these leaders need to create sustained outcomes for multiple stakeholders whose interests are not always aligned. Yet the imperative to take decisive action has perhaps never been as strong. Business as usual isn’t mitigating the climate crisis or bridging the socioeconomic divide. The results of our 25th Annual Global CEO Survey lay these truths bare—and underscore the need for bold leadership to unite us as global citizens and problem solvers.

Near-term optimism

In aggregate, CEO optimism has remained stable, and high. When we surveyed chief executives in October and November of 2021, 77% said they expect global economic growth to improve during the year ahead, an uptick of one percentage point from our previous survey (conducted in January and February of 2021) and the highest figure on record since 2012, when we began asking CEOs how they felt about the economy’s potential.

Although it is unclear how the Omicron variant will affect CEOs’ optimism, today’s headlines emphasise the asymmetrical nature of the world’s pandemic recovery, which our survey results also reflect. CEOs in Brazil, China, Germany and the United States report feeling less optimistic than they were a year ago that growth rates are poised to increase, whereas those in India, Japan and the UK are even more optimistic than they were early last year. These differences may simply reflect where CEOs see themselves in the economic cycle. China and the US, for example, rebounded ahead of the rest of the world and are now experiencing growing pains in the form of inflation, real estate bubbles and supply chain disruptions. Both countries are also confronting labour shortages. In China, shifting demographics and structural unemployment are creating a growing gap; in the US, headlines about the “great resignation” and early retirement predominate.

Threats to the top line

The threats that CEOs are most worried about and the impact they see those threats having on their business in the next 12 months reveal leaders under pressure to deliver top-line results.

Similar to last year, CEOs are most concerned about cyber risks (49%) and the global health situation (48%) as the pandemic lingers. Interestingly, CEOs in the manufacturing and consumer sectors displayed lower levels of concern about cyber risks (40% and 39%, respectively), despite those sectors’ high volume of cyberattacks. Coming in a close third on the threat list for all CEOs is macroeconomic volatility, including fluctuations in GDP, unemployment and inflation.

To understand what lies behind these views, we asked CEOs how they think each threat could inhibit their ability to achieve various business outcomes over the next 12 months. With the exception of social inequality, CEOs are most concerned about the potential of each threat to disrupt revenue. Thiraphong Chansiri, CEO of the Thailand-based global seafood company Thai Union Group, explains how inflation threatens sales: ‘Even if we can successfully pass on the costs, we expect that it might affect volume—that consumption may drop due to the high price.’

Which outcomes matter?

The near-term value creation pressures that are driving CEOs’ most pressing concerns seem even more significant when we look at the outcomes CEOs are working toward—as articulated in their corporate strategies and reflected in their own compensation packages.

Most CEOs have goals related to customer satisfaction, employee engagement, and automation or digitisation included in their long-term strategy. These nonfinancial outcomes are intertwined with day-to-day business performance. Much less well-represented, in strategies and compensation, are targets related to greenhouse gas (GHG) emissions (13% of CEOs have these targets in their annual bonus or long-term incentive plan), workforce gender representation (11%) and racial and ethnic diversity (8%). The picture looks different in industries for which climate change presents a more direct, existential threat. For example, 30% of power and utilities CEOs have GHG emissions tied to their personal compensation, as do 27% of energy CEOs. 

The diverse paths to net zero

COP26 thrust the net-zero transition onto the global stage, adding to momentum that had already been building. For example, by March 2021, more than 2,150 businesses had signed on to the UN’s Race to Zero initiative, placing themselves, at minimum, at the starting line; as of December 2021, this number had grown to 4,475. But the reality is that achieving net zero (when a company reduces its greenhouse gas emissions to near zero and removes its remaining unavoidable emissions) will be exceedingly difficult for some companies and industries, and as a result there’s no single trajectory. We see this evidenced in our survey findings: just 22% of our respondents have made a net-zero commitment, which is consistent with research from the Energy and Climate Intelligence Unit and Oxford Net Zero. An additional 29% of our survey respondents are working toward making a net-zero commitment.

When we take a closer look at the companies formally committed to decarbonisation, several interesting findings emerge. For one, the CEOs of companies that ranked highest on our customer trust index are significantly more likely to lead organisations that have made a net-zero commitment than the average company in our global sample. 

Large companies are also highly represented: nearly two-thirds of those with revenues of US$25bn or more have made a net-zero commitment, compared to 10% of companies with revenues of less than US$100mn. And the public companies in our sample are more than twice as likely as the private companies to have made a net-zero commitment. These findings point to the oft-cited echo chamber phenomenon—the leaders of companies that understand the need to take dramatic action, which tend to be large in terms of both revenue and resources, are the most vocal and active.  

At the sector level, among those that have made net-zero commitments, energy and power and utilities are the most highly represented. This reinforces the fact that high-emitting (and hard-to-abate) industries are often front and centre when it comes to climate action, placing them in the complex and critical role of being part of both the problem and its solution. Japan-based conglomerate Mitsubishi Corporation, which has a large energy business, is grappling with these issues head-on. ‘Japan is expected to cover about 40% of its energy demand with renewables,’ explains CEO Takehiko Kakiuchi. ‘Natural gas is vital for the remaining 60%, and while getting to a consensus around offsetting mechanisms is challenging, carbon-neutral LNG [liquefied natural gas] offers a promising solution.’ There are also questions about what will ultimately be both acceptable to other stakeholders and cost competitive. Nuclear power, the most economical option, is fraught. ‘In Japan, nuclear energy provides a veritable source of clean power, but innovative approaches to safety concerns are essential to overcome public opposition.’

Meanwhile, among CEOs of companies that have not made a commitment to achieve carbon neutrality—attained when a company offsets its greenhouse gas emissions to zero (for example, by purchasing voluntary carbon credits)—or a net-zero commitment, 57% indicate that they don’t think their company produces a meaningful amount of GHG emissions. CEOs from the technology (74%), business services (72%) and insurance (71%) sectors were most likely to place themselves in this category. Many of those companies may be focusing on their Scope 1 (direct) emissions and Scope 2 (indirect from the purchase of electricity, steam, heat or cooling) emissions, as opposed to Scope 3 emissions (those created through the use of their products and across the full value chain, including the contributions of suppliers and other partners). Scope 3 emissions are harder to quantify, and a large number of CEOs report that they lack both the ability to rigorously measure emissions and an established industry-wide approach for decarbonising—highlighting the need for reliable data and consistent processes.

Of the 24% of CEOs who are not confident that their company could fulfil a commitment, many represent sectors that contribute significantly to emissions, such as metals and mining, automotive, and real estate. In major cities, for example, the built environment can account for 70% of emissions. And as Christian Ulbrich, CEO of global real estate services company Jones Lang LaSalle, headquartered in the US, explains, ‘There is no easy solution for many buildings because of the way they are constructed—it is financially unattractive to try to decarbonise them.’ For building owners, this will only become increasingly problematic. ‘The speed with which financial institutions are declining to finance those buildings and investors and fund managers are deciding not to buy them is amazing. Soon we won’t be talking about the premium afforded by green buildings, but rather the discount for brown buildings. And we have far more brown buildings.’

Economic alignment

To better understand the context in which CEOs are seeking to address emissions, we investigated the alignment between climate commitments and their strategic priorities, personal incentives, corporate resources, industry trends and regulatory factors. The upshot: context matters, a lot, and many CEOs are stretching for progress under less than favourable conditions. 

First, consider strategic and incentive alignment. We categorised companies into four groups, based on their decarbonisation commitments, from the most serious (Group 1, representing companies with science-aligned net-zero commitments or commitments-in-progress) to the least (Group 4, comprising companies that have not made a net-zero or carbon-neutral commitment to date; see methodology for information on the four groups). We found that the more significant the decarbonisation commitment, the more likely the company is to have emission targets in its corporate strategy. This is true for 70% of our Group 1 companies, but for only 44% of companies whose commitment is not science-aligned—and for only 9% of companies that have not made any type of commitment. This trend holds for incentives, too: 34% of companies that have made or are progressing toward science-aligned net-zero commitments have emissions tied to CEO compensation, compared to only 1% of companies with no commitment. 

Next, consider the broader context for decision-making and action. CEOs report that their company’s assets, capabilities and relationships, as well as the long-term trends in their industry, were considerably more favourable for creating financial value than for driving GHG reduction. This view is consistent with the priorities of investors, according to the above-mentioned PwC survey of global investors, only 19% of whom said they were prepared to take a hit on their returns exceeding one percentage point in the pursuit of ESG goals. 

CEOs acknowledge the need to navigate these complex financial realities. As Natascha Viljoen, CEO of South Africa–based mining company Anglo American Platinum, explains it, ‘We have a responsibility to mine the mineral resources entrusted to us in a way that maximises the benefits to stakeholders and minimises the impact on the environment and host communities. We know that the mineral resources don’t belong to us; they belong to the people of the country. And then we have our shareholders’ money, which they entrust us with for returns.’

Click here for survey methodology