Deloitte: CFOs in China expected to play more diverse roles in driving sustainability

HONG KONG SAR - Media OutReach - 10 May 2022 - As indicated by The Sustainability Imperative for CFOs, 1st issue of Deloitte China CFO Survey 2022, more than half of the respondents remain optimistic about China's current economic situation, despite lingering impacts of the pandemic and geopolitics at the start of 2022.

Deloitte China CFO Program Leading Partner Norman Sze says, "Results of the survey show that the optimism of CFOs has continued from a year earlier. Though impacted by the pandemic and geopolitical issues, China maintained a world-leading GDP in 2021. More than half of the respondents are optimistic about China's economy, and they expect China's economic development will outpace other economies globally. Anticipation that China would post stronger post-pandemic economic growth also continues from the same period a year ago, as shown by the survey."

The 'dual carbon' goals set forth by China last year has imposed higher requirements for companies from certain industries in pursuing sustainability. Driving sustainable development under this trend would bring positive financial impacts for the company. In this issue, we included the widely discussed topic of 'sustainability' in the CFO Survey to assess the progress of the companies' sustainability plans, understand their work in process and major challenges, and explore the role of CFOs in driving sustainable development within their organization.

The report finds that, while the a large proportion respondents believe that sustainability strategies will have a positive impact and many of them have started to implement sustainability-related work, the level of emphasis on sustainable development differs across industries given the varying degrees of impact from the 'dual carbon' goals. Traditional sectors, especially the energy, resources and industrials sector, are the most impacted, while financial services and technology, media and communications sectors also experience major impacts. With increasing regulatory requirements for climate risk information disclosure, the current responsibility for CFOs centres around the disclosure of financial information related to sustainable development. The expansion of China's green finance market and the increasing demand for corporate carbon emissions audit is expected to broaden CFOs' role in the field of sustainable development. They need to be more proactive in addressing the challenges they are facing, such as the lack of complete data to assist decision-making; the absence of a clear and unified carbon emissions-reduction strategy and accountability system for the management; and the shortage of professional talents with "climate literacy".

"The diffusion of China's carbon peak, carbon neutral and ESG visions to all regions and businesses presents both challenges and opportunities for companies, " says Allan Xie, Deloitte China Climate and Sustainability Leader, "Their achievements in addressing climate change and driving green development will become a core competitive edge for each of them. Deloitte's advice is that companies should assess their own climate and sustainability strategies as early as possible, and seize the opportunity to reshape their strategies from the perspective of long-term development."

"CFOs need to make concrete decisions and establish their organizations' positioning to adapt to future development. With multi-level support from external environment and their organizations, CFOs will play an even greater role in the future," Norman Sze adds.

In terms of the external and internal risks of greatest concern for CFOs, the survey shows that the tightening of industry regulation in 2021 has raised companies' concerns over policy and regulatory issues. The proportion of respondents who are worried about it increased significantly from 27% to 50%, making it the top factor of greatest concern. Inflation and rising commodity costs caused by the recurring impact of the pandemic and prevailing geopolitical issues remain a factor of major concern for CFOs. Compared to the previous year's survey results, concerns about the pandemic and subsequent economic recovery as well as geopolitical issues decreased by 12 and 8.6 percentage points respectively, but remained the second and fourth most worrying external risk factors among respondents. Concerns about inflation and commodity price fluctuations increased by 16.3 and 10.4 percentage points respectively.

Related to the external risks mentioned, the top two internal risks worrying CFOs are cost pressures due to inflation (45.1%) and the inability to drive growth amid concerns over post-pandemic recovery (39.2%). These are followed by talent acquisition/retention (35.3%). Respondents' views echoed those of their peers in other parts of the world – as seen in other CFO surveys we conducted at the end of 2021 – that talent remains one of the top concerns. According to our 2021 Q4 North America CFO survey, talent/ labor was one of the top three enterprise priorities, even outweighing financial performance and growth.

Since 2011, Deloitte has conducted CFO surveys in different markets around the world, regularly collecting and tracking CFOs' perspectives on major issues such as the business environment, company strategy and financial priorities, in order to understand the views and opinions of CFOs in China as well as business priorities for Chinese companies, and provide financial decision-makers with relevant insights. The respondents of this issue are CFOs from Chinese Mainland, Hong Kong SAR and Macau SAR, of whom 47.1% work in private enterprises, 24.5% in foreign/multinational enterprises, and 22.6% in state-owned enterprises. These companies span across a wide range of industries, including energy, resources and industrials; technology, media and telecommunications; financial services; life science and healthcare; consumer; and government and public services, with revenue ranging from less than RMB1 billion to more than RMB40 billion for the last fiscal year. As the survey was completed in January 2022, the results do not reflect the significant political and economic events that have occurred since.

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