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25th Annual Global CEO Survey – Irish economic outlook analysis

Reimagining the outcomes that matter

Two years into the global pandemic and as economic growth picks up again, the Irish economy remains resilient. Despite a continuing high degree of uncertainty, CEOs are looking to the future with optimism while protecting their businesses from threats to the top-line. 2022 will be a delicate balancing act for many, but there is a clear sense that we are closer to the end of the COVID-19 pandemic than the beginning – and with that, comes great opportunity.

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Foreword

I'm delighted to present the findings of PwC's 25th Annual Global CEO Survey. This year, we engaged with 90 Irish CEOs and 4,446 global leaders in 89 territories to gain an insight into the hopes and concerns dominating the C-suite agenda. Headline issues such as cyber-risks, climate change and the ongoing COVID-19 pandemic feature strongly in this year's survey findings, but the many challenges ahead haven't dented CEO optimism.

That isn't surprising when you consider that Ireland's economy is in a much better place now compared to this time last year 1. More people are employed today than before the COVID-19 pandemic began 2, our exports remain buoyant, the FDI pipeline is strong and the country's public finances are in much better shape. All of this gives confidence for businesses as they continue to deal with the lingering impacts of the pandemic.

However, there are significant threats on the horizon from cyber and health risks to climate change and macroeconomic volatility. Talent shortages also have not gone away and inflation and cost pressures are building up. CEOs are battling near-term challenges on many fronts, but the focus on immediate threats must be balanced with a longer-term focus on significant and strategic global challenges — not least, environmental, social and governance (ESG) issues.

The challenge is daunting, but not insurmountable. When the CEO Survey was conducted, PwC launched its new global strategy — The New Equation. It encapsulates our ambition to combine human ingenuity with technology to deliver faster and better outcomes while building trust across the value chain.

So as you consider the survey findings, remember that we are here to help you both grow and protect your business.

Feargal O'Rourke, Managing Partner, PwC Ireland

1. Quarterly economic commentary: Winter 2021.
2. Labour Force Survey, Third quarter 2021.

At a glance

Confidence is high, with most Irish CEOs expecting the Irish economy and their own businesses to grow in the next 12 months. Key avenues for growth include operational efficiencies, new products or services and acquisition-led growth.

Cyber-risk is the dominant threat facing Irish businesses in 2022, ahead of climate change and health risks. Most CEOs are actively mitigating this cyber-risk through their organisations' strategic risk management activities.

While the need for concerted climate action is accepted, just three in 10 Irish CEOs in Ireland have made a net zero commitment. Ireland is ahead of its global counterparts in this regard, but much work clearly remains to be done.

Near-term optimism

CEOs are bullish about the economic prospects for the year ahead, with 91% of Irish CEOs expecting the country's economic growth to improve this year. This optimism is also reflected in their projections for their own businesses, with 94% confident about the prospects for revenue growth in the next 12 months. At the same time, 75% of global CEOs expect economic growth in their country to improve in the year ahead, and 96% are confident about the prospects for revenue growth in their own business.

In terms of global economic growth, 77% of global respondents and 91% of Irish respondents expect the global economy to grow in 2022.

While this high degree of optimism reflects the strength and resilience of the global economy and the ability of CEOs to manage through uncertainty, it is also consistent with the IMF's projection that global GDP will grow 4.9% in 2022. In Ireland, meanwhile, the Central Bank of Ireland projects that modified domestic demand will grow by 7.1% in 2022 with further growth of 5.2% to follow in 2023.

To achieve the anticipated revenue growth in the next 12 months, Irish CEOs will focus on organic growth (77%), operational efficiencies (74%) and new products or services (74%). Almost four in ten (38%) plan to pursue new mergers and acquisitions, up from 21% in 2019, while 42% of respondents expect to form a new strategic alliance or joint venture, up from 29% in 2019.

And despite ongoing Brexit-related issues, 52% of Irish CEOs view the UK as the most important territory for their companies' growth prospects—up from 45% in 2021—followed by the US (43%) and Germany (37%).

While optimism is the dominant trend, 15% of global CEOs expressed a more tepid outlook – more than double the Irish figure of 6%. This is most apparent in the global automotive (46%) and hospitality and leisure sectors (44%), which are grappling with semiconductor shortages and the lingering effects of the pandemic on travel respectively.

❛❛91% of Irish CEOs expect the country's economy to grow this year while 94% forecast growth in their own businesses in the next 12 months.❜❜

An illustrative graphic.

Optimism hits highest level in a decade

Irish CEOs are once again more optimistic year-on-year about the growth prospects of the country's economy, with 91% forecasting growth in the next 12 months; a significant improvement on 2021, when just 49% of Irish CEOs were "favourable" about the country's economic growth prospects. 94% of Irish CEOs are also optimistic about the prospect for revenue growth in their own companies in the year ahead, up from 82% last year. Meanwhile, 77% of global CEOs predict a stronger global economy in the coming year—the most optimistic outlook in 10 years—while 75% expect their own territory's economy to grow.

Question: How do you believe economic growth (i.e. gross domestic product) will change, if at all, over the next 12 months in your territory?

Showing only 'Economy will improve' responses.

Threats to the top-line

While optimism is high for the most part, CEOs are acutely aware of the threats that could impact their businesses' top-line in the months ahead. Cyber-risk (58%) is the dominant risk for Irish CEOs, up from second place in 2021. This is followed by climate change (46%), which did not feature as a risk as recently as 2016, and health risks (40%), which topped the risk register last year but is now in third position. Interestingly, fewer Irish CEOs are concerned about macroeconomic volatility (29%) compared to their global counterparts (43%).

The focus on cyber-risks is natural given the prominence of recent national and international cyber-incidents alongside the pervasiveness of remote working. However, Irish CEOs are even more concerned about this particular risk than their global counterparts (49%), likely attributable, at least in part, to the publicity generated by domestic, high-profile cyberattacks. To mitigate their companies' exposure, 82% of CEOs in Ireland have factored cyber-risks – including hacking, surveillance and misinformation – into their organisations' strategic risk management activities.

The survey also found that the main driver of CEO concern at a global level is the potential of these risks to disrupt revenue. This aligns with the Irish data, which also found that the main concern for Irish CEOs arising from cyber, health and climate-related risks is their company's ability to drive revenue growth (77%, 64% and 66% respectively).

All of this paints a picture of leaders under pressure to deliver top-line results. The challenge for CEOs, however, is balancing this drive for near-term growth with appropriate longer-term investment in risk management and mitigation.

❛❛The challenge for CEOs is balancing the drive for near-term growth with appropriate longer-term investment in risk management and mitigation.❜❜

An illustrative graphic.

Cyber dominates CEOs' risk agenda

CEOs face threats on many fronts, but the increasing incidences of cyberattacks and the prospect of a transition from blanket remote working to a more sustainable hybrid model has led, at least in part, to an increased focus on cyber-risks. Encouragingly, most Irish CEOs are actively mitigating this risk given its capacity to disrupt revenue.

Question: How concerned are you about the following global threats negatively impacting your company over the next 12 months?

Showing only 'very concerned' and 'extremely concerned' responses.

Which outcomes matter?

When it comes to corporate strategies and CEO compensation packages, most global and Irish CEOs have goals related to customer satisfaction, employee engagement and automation or digitisation, for example, included in their long-term strategy. While such non-financial outcomes are intertwined with day-to-day business performance, very few Irish CEOs have incentive-based targets related to greenhouse gas emissions (8%) or racial and ethnic diversity (4%), both of which lag the global figures of 13% and 8% respectively.

Adding such environmental, social and governance (ESG) metrics to executive pay packages can be a powerful means of proving a company's commitment to these principles and elevate such metrics to the top of the CEO agenda. But as a recent strategy+business report titled 'Linking Executive Pay to ESG Goals' illustrates, pay follows strategy – it doesn't drive it. ESG metrics must therefore form part of a company's strategic priorities, which are then reinforced by incentives.

Interestingly, PwC's 25th Annual Global CEO Survey highlighted that the most trusted global companies are 1.4 times more likely to feature gender diversity targets in their CEO compensation plans. Trust is earned, often over an extended period of time, and this is yet another reminder that strategic investment in longer-term, ESG-based initiatives is imperative for the continuing reputational health of your business.

❛❛Very few Irish CEOs have incentive-based targets related to greenhouse gas emissions (8%) or racial and ethnic diversity (4%).❜❜

An illustrative graphic.

Few CEOs incentivised to drive ESG performance

Despite the climate crisis being widely acknowledged as the greatest challenge for this and future generations, fewer than one in 10 Irish CEOs have incentive-based targets related to greenhouse gas emissions. Given the challenge before us, and the collective effort required to avert climate catastrophe, broader ESG considerations must permeate all businesses at all levels – including CEO incentive plans.

Question: Are the following non-financial-related outcomes included in your (a) company's long-term corporate strategy or (b) personal annual bonus or long-term incentive plan?

The diverse paths to net zero

Climate change has become a dominant consideration for all business sectors, and the net zero transition was thrust into the spotlight at the COP26 conference in Glasgow late last year.

While the need for concerted action is accepted, just 31% of CEOs in Ireland have made a net zero commitment. This surpasses the global figure of 22%. Irish CEOs (46%) are also more concerned than their global counterparts (33%) about the potential for climate change to negatively impact their companies over the next 12 months.

This suggests that Irish CEOs are more attuned to the impacts of climate change than their global peers and crucially, more proactive when it comes to taking action. However, there remains much work to be done with 67% of Irish CEOs disclosing that they have made no net zero commitments as yet.

On further examination of the Irish and global CEOs who have not made a carbon neutral or net zero commitment, over half of Irish and global CEOs (52% and 57% respectively) maintain that their companies do not produce a meaningful amount of greenhouse gas emissions. Globally, CEOs in the technology (74%), business services (72%) and insurance (71%) sectors were most likely to place themselves in this category.

Very few CEOs are avoiding commitments out of a belief that their stakeholders (both internal and external) don't care about climate change or because they couldn't afford to do it. This is consistent with the perspective of CEOs who have made net zero commitments: meeting customer expectations was the greatest influence for Irish CEOs (82%) and the number two motivator for global CEOs (61%), behind only their desire to mitigate climate change risks (63%).

And of those making firm decarbonisation commitments, the survey also found that the more significant the commitment, the more likely the company is to have emissions targets in its corporate strategy and CEO incentive plan. To use an old adage, what gets measured gets done.

❛❛67% of Irish CEOs have not made a net zero commitment, half of whom maintain that their companies do not produce a meaningful amount of greenhouse gas emissions.❜❜

An illustrative graphic.

Lack of corporate commitment to net zero

Despite the building of momentum for climate action, spurred by COP26 last November, less than a third of CEOs in Ireland have made a net zero commitment. While this will be difficult for many, it is essential that the business community supports the drive to net zero. Otherwise, they risk the likely loss of trust over time.

Question: Has your company made a carbon-neutral or net zero commitment?


Global industry spotlights

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Actions to take now

Based on the evidence of the survey results, key considerations business leaders should have in mind as they look to the year ahead are set out below.

Icon: two striped arrows.

Reset the conversation

Boards should speak with their CEOs, and CEOs with their top teams, about their collective 'inbox' problem. Enthusiasm about ESG won't make near-term financial demands go away. In a world of scarce time, attention and corporate resources, framing trade-offs realistically may be the only way to bring investors along and create a prudent strategic agenda, as opposed to a wish list.

Icon: two striped plus signs.

Recalibrate skills

Our survey results point to capability-building priorities related to cybersecurity, the cultivation of trust, and the measurement and management of decarbonisation. Leaders are also stretching to reimagine their organisation’s place in the world and juggling an ever broader array of competing priorities. Those who demonstrate empathy and embrace debate and dissent will become more important than ever.

Icon: two striped triangles.

Reappraise succession

The leadership needed to master today's tenuous trade-offs is likely to come in all shapes and sizes, with external hires and emerging leaders from diverse talent pools critical to rounding out skill sets and resetting the conversation. Succession planning is an area where leaders and boards can challenge themselves immediately to start creating the future to which they aspire.

Icon: two striped circles.

Rethink incentives

The strong association between incentives, net zero commitments and other non-financial outcomes suggests it's time for boards and management teams to take a hard look at the fit between the priorities they want their people to drive, the performance management systems they have in place and how they report their progress.

Icon: two striped circles.

Reimagine collaboration

Tackling society’s most urgent challenges won’t be an individual sport. It calls for an unprecedented level of cooperation among business leaders, government officials, policymakers, investors and non-governmental organisations (NGOs). Each brings critical tools to the table and can support and enhance one another’s capabilities. Edelman’s pre-Glasgow Trust Barometer found that together, they can create powerful momentum.

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Contact us

Feargal O'Rourke

Managing Partner, PwC Ireland (Republic of)

Ciarán Kelly

Partner, PwC Ireland (Republic of)

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