The current environment is not easy for investors to navigate. From geopolitical conflicts and supply chain disruptions to rising inflation and higher interest rates, the challenges that corporates – and their CEOs – are facing are understandably raising some concern.
These forward-looking CEOs will then be equipped to react to change, weather external shocks and keep pace with the structural trends shaping our world.
Strategies to adapt to disruption
Technology will be key to how companies create new sources of value. It is already facilitating the creation of new, innovative businesses, while existing businesses have been able improve efficiency and automate.
When corporates invest in digital technologies, it gives employees the tools they need, and enables connectivity, interactivity, transferability and integration for the companies themselves.
It also ties into the sustainability trend: when it comes to addressing their carbon footprint, progressive leaders will have seen the direction of travel long ago and got ahead of the game. “Polluting is no longer going to be for free”, says Sels, and organisations can no longer shy away from an issue that is increasingly important to their customers and stakeholders.
For example, the US Senate has just passed its biggest ever energy bill, setting aside almost USD370 billion to fund clean energy.1 The Inflation Reduction Act aims to boost investment in wind and solar technologies and incentivise consumers to buy electric cars and energy-efficient appliances. For the leaders of companies doing business in the US, it means sharpening their focus on their own environmental impact and how to reduce it.
COP26 set the stage for global decarbonisation, and forward-thinking leaders will already be building this into their business models. It’s these innovative CEOs that investors will need to back if they are to have resilient portfolios in future.
ESG analysis should therefore be seen as an additional lens through which to examine companies, says Sels.
If you get to know a company and its labour processes, its management style and so on, it is going to help you understand the company and have a better forecast in terms of profitability and long-term strategy. So ESG is not just a nice to have and a feelgood factor, it is very much a tool for us that complements financial analysis.
A focus on human capital is “absolutely critical”, agrees McKay. But it’s not just about managing headcount – CEOs must try to see through their colleagues’ eyes to understand their own lived experience. That includes everyone from the support services team to the C-suite.
“What is life like for them currently, how can we make it better, and how can we join that up for a wider value proposition?” she asks. Companies that did this during the pandemic and treated their employees with flexibility, honesty and empathy will likely be rewarded with greater loyalty and a stronger reputation.
With external shocks fundamentally changing the world around us, investors will be seeking strategies to adapt to disruption. Part of this strategy is identifying quality companies: future-proof businesses led by innovative, forward-thinking management that will survive and prosper in any environment.
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1 Climate bill could slash US emissions by 40 per cent after historic Senate vote, The Guardian, 7 August 2022 ↩