CEO survey reveals greater concern for energy and raw material costs

December 10th, 2012 by PwC

According to preliminary results from PwC’s Global Annual CEO Survey, concern about energy and raw material costs as a threat to business growth prospects are at a three year high.

Fifty-three percent of CEOs – a 7% increase on last year’s results – said the issue had now overtaken consumer spending and behaviour as a one of the top threats to growth prospects.

The results on energy, natural resources and climate change issues come as negotiators leave the UN Climate Summit in Doha, which was seen as a stepping stone to a global agreement in 2015 on how to tackle climate change and limit global warming to 2 degrees C. However governments struggled to achieve a moderate outcome from the talks.

The past 12 months have seen high profile examples of extreme weather, price shocks in commodity and energy price spikes.

Concern is at its highest amongst Asia Pacific and African respondents. The preliminary results also found that:

  • 1 in 4 (24%) of Western European CEOs are concerned, or extremely concerned about energy and natural resources costs
  • 47% of CEOs will increase their focus on reducing their environmental footprint in the next year: 41% said there would be no change
  • 1 in 4 CEOs plan to increase investment in securing natural resources critical to business, and addressing the risks of climate change / protecting biodiversity
  • Questioned on their businesses’ ability to cope with extreme events: over a third say natural disasters threatening major trading/manufacturing hubs would have a negative impact on them.

Richard Gledhill, partner, PwC Sustainability & Climate Change, said “with a much more challenging environment for growth, businesses can ill afford price shocks in energy and resource costs for business, so it’s no surprise they are rising up the list of threats to their future growth prospects.

“The upward pressure on energy prices has been tempered by the global slowdown and, in North America, by the boom in gas. But the long term trend is upwards driven by demand from emerging markets, regulatory pressures and the scale of energy investment that’s required.”

“Demand from emerging markets has kept the pressure on commodity prices, and extreme weather or natural disasters have exacerbated price uncertainty and security of supply risks, particularly in agricultural commodities. It’s all adds up to ratchet up CEOs’ concerns,” he said.

“The risk to business is that it faces more unpredictable and extreme weather, and disruptions in policy, markets and supply chains. Resilience to commodity price shocks, policy responses and to the climate is now a boardroom discussion.”

“While a global deal on climate change won’t eliminate future threats or uncertainty, the slow speed and confusion surrounding negotiations to date has delayed investments, action and decisions that could build that resilience in businesses.”

“The Doha summit was a small step towards a long term agreement on climate change. But disputes and disagreement at this stage how far we have to go to get agreement in 2015.”

“For business, the long term direction can’t come soon enough, if they are to make the kind of investments needed to get us on a low carbon track, not to mention adapting to a new normal of high uncertainty, subdued growth and volatile commodity prices.

“It’s worth repeating that if regulatory certainty doesn’t come soon, businesses’ ability to plan and act, particularly around energy, supply chain and risk, could be anything but ‘normal’,” Richard Gledhill said.

The full results of PwC’s 16th Annual Global CEO survey will be released in 2013.

 

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