The race for the future

Click here - 26th Annual Global CEO Survey: India perspective

What is the half-life of your business?

Responses to this set of questions reveal that CEOs recognise the potential for long-term megatrends such as climate change, technology disruption, demographic shifts, a fracturing world and social instability to dramatically reshape the business environment.

So much so that 40% of global and 41% of India respondents say that they do not expect their companies to be economically viable in 10 years, if they continue on their current path and see multiple challenges to profitability in their industry.

Around 62% of India CEOs believe that changing customer demand will impact profitability in their respective industries over the next ten years to a large or very large extent, followed by 54% who are concerned about changes in regulations. While 52% of global CEOs see shortage of labour and skills as their next biggest concern, 53% of India CEOs are more worried about technology disruptors such as AI and blockchain, and 49% are worried about supply chain disruption. Certain sectors such as pharmaceuticals, automotive, consumer electronics and chemicals have significant dependence on materials imported from countries such as China, Taiwan and Japan. These factors cause India CEOs to worry about supply chain disruption, uncertain lead times, heightened freight rates and commodity prices.

The lower concern about availability of labour and skills – only 40% – is surprising and is perhaps a reflection of India’s youthful demographics, irrespective of concerns regarding skill set mismatch. About 67% of India’s people are in the working age group of 15–64, and these numbers are expected to grow for some years, according to World Bank data.3 Compared to India, the same age group in countries such as Germany, France, Australia and the US is declining.

The next steps

To ensure a harmonious and collaborative ecosystem that provides a level playing field for all, it is important for CEOs to:

  • understand the fast-changing needs of customers to continuously deliver enhanced value.
  • service the shift in consumer expectations across new channel models such as direct to consumer (D2C) that offer a wide product range, pricing and product reliability along with good delivery experience.
  • model in geopolitical shocks to supply chains that could entail decoupling scenarios, diversification needs and consequent relocation adjustments.
  • recalibrate skills to propel the future-fit transformation in anticipation of tomorrow’s demands.

When will your company’s climate clock run out?

Over the next 12 months, global and India CEOs see climate risk impacting their supply chains and cost profiles. While those who are more impacted by climate change are the ones taking the most action, it is advisable to act early to minimise the impact of climate change.

India is amongst the top five best-performing countries on climate change, according to the Climate Change Performance Index (CCPI, 2023) published by German Watch, the New Climate Institute and Climate Action Network International based in Germany.4

Building on the supportive policy environment around energy and environment, corporates have begun to leverage various decarbonisation levers to achieve India’s Nationally Determined Contribution (NDC) targets – 45% reduction in carbon intensity in GDP over the 2005 baseline, and 50% non-fossil energy in the energy mix by 2030.5

About 72% of India CEOs (as against about 60% of global CEOs) have implemented or are implementing initiatives to reduce their company’s emissions. The same percentage of CEOs have also innovated or are innovating climate-friendly products and services.

The race for the future

“Blessed with abundant sunshine, India is naturally positioned to exploit solar energy to decarbonise our economy. The challenge is to bundle various forms of renewable energy – green hydrogen, wind and biomass – with storage technology, be it around batteries or pumped hydro. There is an urgent need for a commercially viable technological innovation.”

– Dr. Praveer Sinha, CEO and Managing Director, Tata Power Co. Ltd

Many companies are embarking on a journey to address climate risks and decarbonisation without information provided by an internal pricing mechanism for carbon. In India, 34% of companies say that they have no plans to apply an internal carbon price to decision-making. This could be a strong lever to account for considerations such as taxes and incentives, and leverage strategic trade-offs.

Measuring and communicating progress to critical stakeholders is another big challenge. In PwC’s recent Global Investor Survey 2022, 87% of global investors said they think corporate reporting contains unsubstantiated sustainability claims, often referred to as ‘greenwashing’.6 While they also believe there is a climate change impact on their investments in the next 12 months, it is heartening to note that 72% CEOs are in agreement.

This indicates convergence of mindset and can help establish the right platform for actions to be initiated.

According to the Climate Transparency Report 2022,7 India lost 5.4% of its GDP (USD 159 billion) by way of labour capacity reduction due to extreme heat in 2021. Therefore, the key questions India CEOs face are:

  • Which aspects of my business will be affected by intensifying climate change?
  • What priority actions should I take now to ensure that future impacts can be effectively and efficiently managed?
  • How do I establish governance systems to gain the confidence of the board of directors?

The next steps

It is essential today to move at the right pace and prioritise the mitigation of climate change risks. There is a need for:

  • a detailed corporate understanding of the risks and opportunities related to climate change for businesses
  • an appropriate governance framework resting on evidence-based data to address risks and capitalise on opportunities
  • an investment plan and roadmap
  • accelerating and enhancing execution planning, monitoring and reporting on how CEOs are addressing sustainability risks and opportunities facing their businesses to gain investor confidence.

Should you bring your key risks forward?

India and global CEOs identify inflation and macroeconomic risks followed by geopolitical conflict as the biggest threats to their businesses in the short term (a 12-month period). The grading is understandable, given that global economic activity is experiencing a broad-based slowdown with inflation higher than it has been in decades.8

Central banks across the world are raising interest rates to cool inflation, but these are beginning to impact consumer demands and raising overheads for businesses. The conflict in Europe has severely impacted food prices and disrupted energy supplies. China’s prolonged COVID-19 pandemic-linked lockdowns and the rise in infections owing to a sudden removal of restrictions there have caused anxieties over disturbed global supply chains, affecting a range of businesses across the world.

Around 35% of India CEOs point at inflation and 28% at macroeconomic volatility as key threats in the next 12 months, worries that are also voiced by Asia Pacific and global CEOs. CEOs across the Asia Pacific region, however, perceive threats differently depending on the economic maturities and nuances of their operating environment. Mature economies such as Australia and Japan worry more about cyber risk, while geopolitical conflict is the top threat for China, Hong Kong SAR and South Korea.

Climate change gains prominence as a cause for concern for India CEOs over the next five years, with 31% voicing that they believe their companies will be extremely/highly exposed to it.

Inflation and climate change stand out as key threats in the next five years

The United Nations Intergovernmental Panel on Climate Change (IPCC), in its sixth assessment report9 released in February 2022, identified India as one of the countries that would be most economically harmed by climate change.

India-based businesses therefore have a two-pronged objective to help meet the country’s 2070 net zero target: address the cost and technological challenges of decarbonisation along with the negative socioeconomic impacts of decarbonisation.

The next steps

Considering the magnitude of climate risks and natural disasters, and its ability to progressively impact near-term cash flows through a cycle of disruption of supply chains and inventory, business leaders would need to:

  • widen their focus beyond immediate concerns to develop a data-driven strategy for their businesses to reduce emissions and mitigate climate risk in the near and long term
  • invest in climate-friendly products and processes
  • move beyond environment, social and governance (ESG) to an ESG+R approach (where ‘R’ stands for resilience) to address the impacts of climate change across the strata
  • stay ahead of cyber challenges by having a dedicated leadership group that understands the significance of cyber security and treats it as a priority.
The race for the future

“We reframed sustainability as a mainstream opportunity to drive our performance and set some very bold goals. We aim to serve 1.5 billion patients by 2030 which will have to include the underserved, which will in turn add to our top-line growth... We are committed to carbon neutrality, water positivity, 100% renewable power and zero waste to landfills. We are aiming for the water neutrality goal by 2030.”

– G. V. Prasad, Co-Chairman and Managing Director, Dr. Reddy’s Laboratories
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Sanjeev Krishan

Sanjeev Krishan

Chairperson, PwC India

Tel: +91 124 330 6017

Vivek  Prasad

Vivek Prasad

Markets Leader, PwC India