Pessimistic CFOs fret over cyber risks, ESG and economy: Deloitte

Survey finds rising uncertainty and concerns over hacker threats and environmental pressures.

Pessimism about the economy is rising among CFOs against a backdrop of concerns about cyber security risks and ESG issues, according to Deloitte.

In Deloitte’s biannual CFO Sentiment survey, 46 per cent of CFOs said “doing the right thing” was the motivation for an ESG program while 49 per cent said investor and shareholder demands were the reason, down from 67 per cent previously.

“ESG action is also increasingly being driven from within businesses, rather than primarily in response to external demands,” said Deloitte partner and CFO program leader Stephen Gustafson.

“This is a fundamental shift in the narrative.”

“They (businesses) are also having to balance ESG investment decisions against competing ESG priorities, an uncertain economic environment, and reduced risk appetite.”

CFOs said barriers to increased ESG action included difficulty prioritising competing issues and initiatives (55 per cent), difficulty measuring return on investment and a link between ESG and value creation (51 per cent), and a lack of either people or financial resources (49 per cent).

At the weekend the Treasurer said the government would make the reporting of climate related risk mandatory next year, with a consultation process until February 17, and big business the initial focus.

The Deloitte report also found an increasing focus on cyber security and one in three CFOs said they had dealt with a cyber-related incident recently.

“Cyber security has become an increasingly prominent business risk,” said Mr Gustafson.

“In the last 12 months, 32 per cent of surveyed CFOs had confronted at least one cyber security incident in their business, and 86 per cent of this group reported that the frequency of incidents had increased.”

“Yet less than half of all survey respondents agreed they were prepared to handle a significant cyber incident, making their vulnerability a serious risk across areas including trust and reputation, and operational disruption.”

A reputational loss for their business was CFOs’ top concern from cyber risks (82 per cent), followed by operational disruption (72 per cent), and a loss of customer trust (68 per cent).

Approximately 84 per cent of CFOs said they expected an increase in investment in cyber incident response training and procedures.

CFOs also had an increasingly pessimistic view of the economy, with 92 per cent concerned that external financial and economic uncertainty levels were higher than normal, a 4 per cent increase from six months ago.

This was also reflected in CFOs being more cautious and only 20 per cent said now would be a good time to take more risk on their balance sheets, the second-lowest on record.

“CFOs appear to be in two minds,” said Mr Gustafson.

“Optimism is holding on the back of its recovery in the first half of 2022 despite back-to-back declines during COVID lockdowns in late 2021 and emerging inflation earlier this year, but confidence about the economy is in very low territory.”

“The vast majority of CFOs still believe rates will continue to increase over the next 12 months, mirroring sentiment in financial markets and guidance from the RBA, and as a result many are bracing for operating expenses to increase over the next 12 months.”

This article was originally featured on 13 December in Accountants Daily.