Category: Finance & Banking

In this exclusive interview, Koen de Leus, Chief Economist at BNP Paribas Fortis, shares five trends that will shape the new world economy, how they will impact businesses, and what business leaders can do to futureproof their organizations. He also answers burning questions on whether Europe is going into a recession and why companies must act now and play their parts in curbing the climate crisis.

 

Congratulations on the release of your book with Philippe Gijsels, The New World Economy in 5 Trends. What can business leaders, particularly CFOs, learn from the book?

Together with my colleague, Philippe Gijsels, who is the Chief Strategist at BNP Paribas Fortis, we identified five trends. Four of these trends are inflationary, and one trend is disinflationary. The disinflationary one is innovation, and I think it’s going to increase productivity in the long run, starting in five to 10 years and continuing for the next decades. But in the decades, we will see four trends as well that are going to push up inflation. Firstly, deglobalization, you have more walls around countries so that’s going to be inflationary. There’s aging that’s going to push up salaries which already has a big impact on companies. Next, the climate transition that is going to cause commodity shocks and supply chain shocks. And of course, there is the high debt level of the governments. If you have a little bit of inflation, it’s easier to control this high debt level.  

These are the four elements that are pushing in the direction of inflation, higher interest rates, and higher nominal interest rates. We think that The Great Moderation, the period of around 40 years of a gradual decrease in inflation and interest rates is over. CFOs who think inflation will go down to below 2% and stay there over the coming decades are wrong. We are not going back to a period of ultra-low interest rates. Interest rates are going to go down a little bit, but then will gradually increase in the next decade. The peak this time was around 5% in the United States. Maybe it will go down to 3% or even 2.5%, but then it will go back up to a higher level of 6% or 7%. That is something CFOs have to consider if they want to fix costs at a certain interest rate. 

In the past, CFOs had time to fix prices since they went gradually lower, decade after decade. In the future, interest rates will be more volatile because of the expected inflation shocks and will structurally move higher. This means that they risk missing the opportunity to fix interest rates at a relatively low level. So, CFOs need to be more agile there, as well as in their supply chains and fixing prices of commodities. This is because we are entering The Great Disequilibrium where prices are going to be much more volatile and supply chains are going to be disrupted further. With regards to commodities, CFOs need to fix prices much more frequently to take advantage of lower prices, because before you know it, they will shoot up. Maybe there is a trade war again between the United States and China or there is havoc in South America. Many events can disrupt the way of doing business.  

They have to plan just-in-case instead of just-in-time.  

They have to diversify where their goods are coming from, not just from one country anymore, perhaps China Plus One or China Plus Two. They’ll need to find suppliers in countries outside of China or countries that are in between China and Europe or in between China and the U.S., maybe they can have some more stocks or more warehousing. This is of course going to weigh a little bit on the margins, but they need to make sure that they can supply to their clients in times of disruption.  

 

One of the trends you identified in the book is the West’s aging population. How will this impact the labor force, especially with the increasing demand for tech talent?

With regard to tech talent and innovation, when I was studying this trend, I found that innovation accelerated after big shocks such as the pandemic. The demand for innovation, and tech talent as a result, was also high over the past years with the climate and energy crisis and the Russia-Ukraine war. So, there were many investments by companies in technology, which bodes well for innovation in the long term. I think that in the next decade, productivity levels will be one percentage point higher, from 0.2% to 1.2%. Now, what we also saw was an overinvesting by technology companies resulting in many layoffs. One positive outcome of the layoffs was that it gave other companies opportunities to hire those people and implement new technologies after the shocks.  

But as you point out, the impact of the aging population on the labor force will be huge. For example, China’s population will decrease by 40% to 45% between 2020 and 2100. Its working-age population will decrease by 65%. In Italy, the total population is going to drop to 37 million from 60 million by 2100, causing the working population to decrease by 50%. In Germany, its total population is going to be reduced from 83 to 69 million between 2020 and 2100, and the working population by 30%. So that is pretty dramatic.  

The demand is going to slow down as well as production. It’s going to be difficult for companies to find enough workers. Many people are saying artificial intelligence is dangerous. Five years ago, we did a survey with our corporate clients, and they found that artificial intelligence and automation are disruptive and will cause job loss. However, you see a change of mindset today. This change of mindset is very important, this means that companies are going to actively invest in technology to compensate for the dwindling working-age population. If companies want to produce more, the only way to do that is through automation.  

Artificial intelligence is a blessing in disguise, and we have to embrace it.  

 

Rising energy prices in Europe have accelerated the need for businesses to transition to greener alternatives. What can business leaders do to ensure their organizations are on the right track with the climate transition?

It’s difficult but you have to act fast. The longer you wait, the shorter the amount of time you have to do it. Today, we don’t have a global CO2 price yet. We have a CO2 price for European companies with the ETS system but sooner or later we will need a global CO2 price. We have to reduce the emission of CO2 much faster than what is happening today. 1.4°C of global warming was recorded in 2023. At the moment, there are quite a lot of countries that have not introduced any CO2 price. But sooner or later, the global carbon budget will be completely used up. At the present rate of emissions, we still have a budget of 6 years. That is the extra amount of CO2 that we can emit in the air to keep temperatures rising to 1.5°C. After that, every extra ton emitted will push global warming above 1.5°C.  

I think that at a certain point in time, there will be a big catastrophe. It will probably be in one of the big countries like the U.S., Europe, China, or Canada. And then everybody will realize the seriousness of the situation and sprint into action. A relatively high global CO2 price will be put into place which will be a big shock to the companies that are late to the game. They will be hit hard because they need to diminish their emission of CO2 from one year to the next. I think this will happen in 5 to 20 years. Companies that act too late risk going broke. When you have plans to invest, you need to have an internal CO2 price, $100 per ton for example. If your investment is not viable with that kind of CO2 pricing, don’t invest. Instead of just investing and looking at returns, include some kind of CO2 pricing.  

Another thing companies should consider is that banks are going to be stricter in giving loans to certain investments with high amounts of CO2 emissions. That is not because we want to be difficult, but we have rules that we need to adhere to, we have certain limits regarding our loan portfolio, how many loans we are going to give, and how green these loans must be. If these loans are not green at all, and we’re still investing in oil or coal, then we know that sooner or later, we are going to have problems, because some of these companies are going to go broke.  

There are new laws at the central banks that monitor these loans. As a bank, we’re following what was articulated by the International Energy Agency which is to achieve Net Zero by 2050. We are following that path as well in different sectors. For example, we are going to reduce the financing of oil exploration and production by 80% by 2040. That is something BNP Paribas is doing, and we’re going to reduce the financing of gas in our loan book by 30%. Like it or not, banks have to play the game, because they’re under the control of the central banks and many banks are following the Net Zero by 2050 path. At a certain point in time, companies won’t get a loan anymore. 

 

Is Europe going into a recession in 2024? How should business leaders prepare?

I don’t think we’re going into a recession. We’re going to have a very slow growth like in 2023. We had negative growth in Germany which is going in and out of a recession. The growth is not going to accelerate. What we saw was a slowdown in Q3 and Q4 2023 and will probably continue in Q1 2024 as well. But from Q2 2024, we will see a gradual acceleration of the economy. Of course, that has a lot to do with the decrease in interest rates, which we think will start to decrease around Q2 2024. This will give extra breathing space for the economy.  

Also, in the U.S. we think that – finally – the economy will decelerate. Will the increase in interest rates push the economy into a recession? That depends on how fast the Federal Reserve will react and the anticipation of markets on what the Federal Reserve will do. Although short-term interest rates at 5.5% are at their highest level since 2001, markets anticipate in January a steep decline to 4% by the end of 2024. So, long-term interest rates have come down in tandem to 4%. This has pushed mortgage rates down and kept residential investments abroad. This could mean a soft landing is in the making, although that is always the goal of the Federal Reserve, but it very rarely turns out that way.  

Another element that companies will have to take into account is that China’s growth will continue to be meager. Consumption remains low and residential real estate continues underperforming. This will have a positive impact on commodity prices, although the evolution of oil prices will depend as well on the situation in the Middle East. The fact that oil prices have remained contained so far has a lot to do with the U.S. and the additional output recently produced by shale oil producers. All in all, I expect a volatile year which will only be articulated by the fact that about half of the world’s adult population will vote, and the mother of all elections being held in the U.S.

 

What can attendees expect from your session at Executive Forum Finance later this year?

They can expect a long-term view of the future to see how they can prepare for this new future. We’re going from The Great Moderation to The Great Disequilibrium to The Great Chaos. So, we’re going to a completely new era, and this has quite a lot of consequences for companies. 

 

*The interview answers have been edited for length and clarity. 

The unprecedented crisis over the last few years has thrown global supply chains into further chaos, jeopardizing revenue streams across industries. As organizations scramble to find their way onto stable ground again, future-proofing supply chains have reemerged on the CFO’s agenda with urgency.  

We spoke to Hans Backman and Javier van Engelen about how finance leaders can navigate the continental complexities of the current economic landscape.  

   

How do you plan to protect yourself from disruptions and prepare for the coming year? 

 

HANS: What I’ve seen as a finance manager, looking into the numbers, is an enormous increase in working capital, tying up more money on components and raw materials. But we hope that situation will ease going forward. The price increases we’ve seen are tremendous as well. It’s been a vital role of the finance community within the company to ensure and push for price increases so that we are not stuck.  

Looking forward, we see a new type of price increase coming on the fixed costs side, like utilities and wages. We need to cater to that. Because while the prices of raw materials and components seem to be decreasing a little, it’s escalating on the other side. We need to make sure that we compensate for that with price increases or cost savings. Going forward, keeping decent profitability is very important.  

 

JAVIER: First, we keep on working strongly to lower global dependencies. I think products and sourcing can be more regionalized than globalized. But relooking at our footprint and reducing dependency is not easy because the system of electronics is ingrained in the East, especially in China. It’s going to take years to develop an ecosystem on a different continent.  

Another thing is dual sourcing and taking significant price increases to protect our gross margin as a company. Raw material prices are going down, but labor costs are going up. There is inflation and there is a need to do some hardcore cost savings to protect profitability.  

 

“As I say, never waste a good crisis. We’re going to get stronger from the crisis than when we came into it. So, plan for the worst and hope that things will be better.”

– Javier Engelen 

 

What role does a CFO have within a company? 

 

HANS: We’re part of a team and we need to keep discussions ongoing with our colleagues in finding ways to solve this. Of course, the primary focus of a CFO is to look at the numbers and ensure profitability and a sound financial setup. But that is achieved by cooperating with colleagues in the company. I think the benefit of a CFO role is that you have the possibility to meet different people within the group and be part of several different discussions and highlight the importance of making money. If you do make money, that is when you have the possibility to invest in people, new products, and the business.  

So being active with your colleagues about having a good flow of products and ensuring a decent margin is very important.  

 

JAVIER: The first thing I’ve done in the crisis is to stress the importance of fiduciary responsibility in finance. We are here first and foremost to make accurate records and accurate data on time. In situations like these, I’ve found that it’s extremely important to have one source of data. Because if everyone starts inventing their own numbers, you can’t make decisions. Accurate data available on time increases the speed of decision-making. Without doing that, the rest is no use.  

The bigger role comes in how you influence decisions. There are a couple of things we’ve been trying to do. As the CFO, I think there’s a unique opportunity given to us – it’s a blessing and a curse – that in a crisis, you can bring things together. The first part is making sure we help people anticipate. Some things we couldn’t foresee, like the COVID pandemic. But some, like the supply chain issues, there were early signals. There was an overheating of the economy, and chip manufacturers cut down production. There were things hinting that a problem was coming up.  

What I’ve always advocated is that the typical old finance function was looking backward and reconciling numbers. The new finance function as a business partner has to be much more anticipating – scenario planning. What indicators do you have that will give you certain direction? 

Another thing in a crisis is to provide options. Having a more objective view of the business as a finance person allows you to step back and see that there is more than one option. You always must have a backup because you never know what the world is going to throw at you next. 

One of the key things we’re also leading out of finance in this company is risk assessment. Every year, we do a macroeconomic risk assessment looking forward and we translate that into strategic plans. One of the roles of a CFO is to make sure that the rest of the company doesn’t panic. We can take a step back and make sure there’s more rationality in the business. We have to communicate and make sure people don’t panic. 

 

So, communication is very important. What other qualities make a good CFO and leader? 

 

HANS: The fiduciary responsibilities of course are a basis. But then coming into the communicative part, that is certainly very important. Mirroring what Javier said earlier about numbers, it should be the same across the company. You need to ensure that you have a manual that is agreed upon by everyone and it’s understood. You need to keep it simple and based on common sense.  

We only have four financial targets within the group which are clearly communicated. Below that, we look into certain areas that need focus, but these four financial targets are the same for each company.  

 

“Knowing your numbers and the tools around them is important but being able to communicate and bring the message across is also crucial.”

– Hans Backman 

 

JAVIER: Especially in the current situation, being able to anticipate versus explain. The weight put on a CFO’s shoulders now is more on helping to make business decisions without having lost that fiduciary responsibility. It basically means that we are here to anticipate more than to reconcile, to find solutions more than to control. To do that, we have to challenge existing practices and you only get a license to operate if you understand the business.  

The profile has changed. You have to be able to talk business and be more creative in finding new solutions. You have to bring all the functions together. I often find myself in a mediation role between different departments, bringing them back together on the same page, which means communication and interpersonal management skills in a global company become absolutely important. We have to instill trust in people to believe that we’re doing the right thing. 

 

And collaboration with different C-levels is also crucial and something you have to do more, right? 

 

HANS: Absolutely. We try to keep an open dialogue as much as possible. 

What is also important for us with the empowered structure we have with more or less independent companies is setting clear targets for each company rather than telling them what and how to do it. We tell them what they need to achieve. Of course, we also enable people to communicate with each other and take responsibility for the targets that we set. 

JAVIER: I would echo the same – clear values and key operating principles. I will admit that I also see the drawbacks of what Hans was saying. We have a lot of dispersed KPIs and that sometimes does not help as it drives a more siloed mentality.  

I think it’s important to bring cohesiveness to the company through messaging – clear priorities, strategic planning, and setting frameworks. We should not get into micromanaging how to achieve the set targets, but you can count on the creativity and expertise of people at the lower level to tell you how it can be done.  

 

How do you know that you’re ready for future disruptions? 

 

HANS: You never know about the future, right? Just making plans for the next months is hard enough. We tried to broaden our setup. If we talk about supply chain disruptions, having one partner is not good enough. That also puts more demand on your ERP system. Also, redesigning. Is there more we can do in-house? On top of that, we are beefing up our purchasing department and being more struct with suppliers.  

As Javier mentioned, we are also looking ahead with the numbers, doing forecasts to try and anticipate what’s coming and be prepared. In this lies increased flexibility.  

 

How can CFOs ensure they are future-proofed? 

 

JAVIER: It’s going to be hard because you can’t predict everything. Having said that, one of the best practices I’ve seen, at least in Signify, is the risk assessment process. What I appreciated when I came in was having an annual dialogue with the supervisory board about the risk environment. Starting with a good dialogue at least once a year and taking a step back from the day-to-day business to see what is happening around the world – political tensions, natural catastrophes, labor increases – those are predictable, and you can take those into consideration. The risks are often there but incorporating that into your plans is important.  

So having your finger on the pulse of what’s happening outside of the company, you get some predictability of the future and what core things will impact the company, and what you should pursue. This gives you the agility to adjust for what comes next.  

The second thing is to do regular scenario-planning fire drills. This is easier said than done. But doing drills for cybersecurity or business continuity shows a living situation.  

 

“The name of the game is to anticipate as much as you can and be ready to adjust when course corrections are needed.”

– Javier Engelen 

In the session, The Rise of Global Inflation Crisis: At What Cost to Your Business? Carsten Brzeski answers burning questions on the short-term and long-term effects of inflation on businesses, which industries will inflation hit the hardest, whether a recession is around the corner, and more.  

   

What are the short-term and long-term effects of inflation on businesses and consumers?

Costs are increasing — energy, commodities, food, and input prices. If your cost position goes up, you will feel it as a business. If you’re in services, you will see the long-term effects in terms of wages. If you’re in manufacturing, you will feel it in input goods. Interestingly, in Europe, at least until this summer, businesses were able to pass most of their costs to other businesses or consumers. There was so much demand and people were buying everything they could.  

However, we have seen a turning point, prices have increased too much that buying something has become unaffordable. Businesses can’t buy input goods at this extremely high price because they can no longer sell them. We even have anecdotal evidence of production facilities closing because costs have increased. Inflation is clearly affecting businesses in different sectors.  

I think Europe is sliding into a recession because these costs can no longer be passed to consumers. High energy and commodity prices are here to stay, maybe not exactly at the same level as they’re currently, but they will be higher than before the war. The war in Ukraine is more of an economic game changer than two years of COVID have ever been.

What should not be underestimated is the possible shifts in the global economy — moving away from just-in-time delivery towards new supply chains and the end of globalization as we know it. A world that is dominated by more regional trade agreements. In this case, companies will have to restructure the production and processes of supply chains, and this comes with higher costs.   

During the stagflation crisis in the 1970s, there was the so-called price wave spiral: inflation goes up, wage growth goes up, and inflation increases again. Soon we will see higher wages as compensation for the loss of purchasing power in employees. Most of the western world, especially Europe, has an aging population. This results in a shrinking labor force and with inflationary pressure, we will see employees have more power to ask for higher wages.  

Unless you’re able to completely optimize or digitize labor, businesses must prepare for higher labor costs. My advice to employers is to invest in your workplace to make it an attractive place for people to stay and be open to innovation. The younger generation also values work-life balance so that has to be part of the job package.  

 

Besides oil and gas, which industries are most impacted by inflation?

Industries that are energy intensive such as chemical, automotive, and manufacturing. Energy has become expensive, which means businesses need to start or continue the transition to greener alternatives.    

All sectors will eventually be hit with inflation. The services sector will not be hit initially because it is less exposed to direct energy costs, but it will face the loss of purchasing power by consumers. While most sectors felt the heat from higher energy prices in the first half of the year, services were thriving because people were spending the money they saved during the lockdown. Let’s fast forward to the coming months when the heating season starts again. Energy bills will multiply fivefold, which will affect the services industry in the long run. 

 

How does the current economic situation compare to the stagflation crisis in the 1970s?

Other regions that are important for the global economy are not experiencing the same inflation crisis as the U.S. or Europe. The world has become much more fragmented with economic power being more spread out across the globe compared to the 1970s.  

It’s similar to the 1970s in the western world, namely higher energy prices and inflation rates. We are starting to see the difference between the U.S. and the Eurozone. In the U.S., we see the effects of higher wages which has not happened in Europe yet. Wage growth was strong in the 1970s. The happy ending would be from negative real wage growth, purchasing power declines, leading to weaker demand and lower inflation rates.  

In the 1970s, central banks were required to offer double-digit interest rate levels to kill inflation. Central banks today react faster, even the ECB. I have doubts about whether central banks can bring down inflation by changing business and consumer expectations. If they can, the recent interest rate hikes would already be sufficient to lower inflation.  

 

What actions should a business take to minimize risk during times of high inflation?

I don’t think businesses can fight inflation. Governments can lower inflation rates by introducing price caps and energy rebates. Secondly, central banks can help by hiking interest rates. Businesses cannot actively bring down inflation. They need to adapt.  

This means purchasing managers and procurement must be more efficient to save costs. When it comes to labor costs, it’s a very tough balancing act. On one side, businesses can consider a one-off wage increase to offset higher inflation. Additionally, businesses that are exposed to high energy costs can find alternatives. This can hardly be done without upfront investments which means more initial costs.  

 

Policies to reduce inflation like tighter fiscal policies and wage control have fared poorly in the past. What are your thoughts on this?

We have a supply side revenue inflation with higher energy and commodity prices. Tackling this is impossible to do in a year, but what needs to be done is finding new energy sources that are not from Russia and providing commodities that are not exposed to supply chain problems in Asia. Of course, that means tighter fiscal policies. That’s what we hear from central banks now.  

They will bring economies down on their knees by hiking interest rates, which will then lower demand and eventually inflation. It can be a painful process. We’re listening to the Fed and the ECB and on what they’re currently willing to do. Another angle with tighter fiscal policies is to support the demand side by giving subsidies which could support the economy in the short run but increase the risk of a longer period of inflation. 

 

Is the world heading into another recession? How will Europe compare to the rest of the world?

The IMF defines a global recession as global GDP growth of below 2.5%. But considering what’s going on in other countries, I do not expect a global recession. The U.S. is still going strong and there’s a good chance we might see a soft landing there. China is slowing down, but we need to see how it will deal with its Zero-COVID strategy going into winter. My assumption is China will not slip into recession. The most exposed region is Europe and I predict a winter recession. The severity of this recession will depend on how much additional fiscal stimulus we will get in the coming weeks. 

 

Will the U.S. dollar become stronger than the euro?

We will see more rate hikes by the Fed than the ECB, which will result in the further weakening of the euro. I also think the recession in Europe will be more severe than any slowdown in the U.S., which will favor the dollar. We would need to see a resolve in the Ukraine war for the euro to improve, but I do not see this realistically happening. That means the dollar will strengthen further at least up until the summer of 2023.

 

When will we see inflation rates reduce in Europe?

Government measures over the last month have blurred the inflation picture. Every time a government measure to bring down prices expires; prices will go up again and have an imminent impact on inflation. The so-called passing on of market gas prices to consumers and companies takes a while. Consumers have been hit by high prices of food, gasoline, and energy. This means inflation in Europe will still accelerate. Several countries in the Eurozone already have inflation rates above 10%.  

I think the rates will remain until Q1 2023 and then we should start seeing inflation gradually coming down. Obviously, a lot depends on the war in Ukraine and how gas prices will develop. I see the average inflation rate for 2022 coming in at around 8% and 5% in 2023.  

However, prices will remain high even if inflation goes down. I do not think there will be enough wage growth over the next two years. The loss of purchasing power will mean that Europe will lose economic wealth and international competitiveness due to higher cost pressures on the business side and high inflation on the consumer side. 

 

Are there any hidden opportunities for businesses during this economic crisis?

We have so many crises, particularly here in Europe. We are amid a perfect storm. The wild card is how will governments react. What we learned from the pandemic is that governments can cushion any economic slowdown via fiscal stimulus. Currently, Europe has an average fiscal stimulus measure of around 2% to 3% of GDP, aimed at bringing relief against high energy prices. During the pandemic, we had fiscal stimulus from European governments between 10% and 15% of GDP.  

I think the silver lining is when you get to investigate the reasons for inflation. The main reason is energy prices. Prior to the war, there was the European Green Deal initiative. This transition offers enormous business and investment opportunities for organizations. There will also be opportunities for some regions in Europe if organizations decide to reshore production processes and supply chains closer to home. In addition, financial services and fintech providers could thrive in the upcoming years as consumers want to be more efficient with their money.  

 

*The transcript has been edited for length and clarity.  

The past three years have seen CFOs increasing efforts in digitalizing financial tools and processes. They also had to ensure operations ran smoothly amid unprecedented economic disruptions, shifts in the workforce environment, and fluctuating consumer and investor expectations. As 2022 comes to a close, what should CFOs prioritize for the coming year?

 

Recession

The worsening energy crisis in Europe may lead to a severe recession in 2023, according to JPMorgan. It will be the biggest economic risk CFOs have to tackle – potentially facing a slowdown in manufacturing, reduction in consumer spending, and loss of jobs.  

How CFOs manage their cash flows and reserves will impact how well the company survives during an economic downturn. Campbell Harvey, a professor of finance at Duke’s Fuqua School of Business, says, “Often when a company goes into a slowdown or a recession, they effectively have to spend the cash that they’ve got. A company that has been really wise in terms of its debt management and cash management, they can seize that opportunity. A very bad strategy is to make cuts that are relatively easy to do but damage your long-term position.” 

There are finance leaders who are on the same page as Harvey, like Bill Betz, CFO of NXP Semiconductors NV. When asked how he is preparing for a recession, he says, “It’s all around protecting our free cash flow. Our actions would potentially include reducing variable compensation, discretionary spending, and noncritical capex.” 

CFOs are also ramping up scenario planning initiatives. According to CFO of Shell PLC, Sinead Gorman, the company is stress testing each investment in high scenario, low scenario, and base scenario environments, “and that allows us to be prepared.],” she says. This is in line with our findings in the CFO Investments 2022 report, where 69% of surveyed CFOs are cultivating organizational resilience by investing in rolling forecast tools and scenario planning.  

 

Business Intelligence

High-quality data is essential for forecasting and scenario planning – this is where business intelligence (BI) comes in. Findings in the CFO Investments 2022 report support this, with 53% of CFOs citing the need for advanced BI tools for better data-based forecasting, and 68% of finance leaders investing between €100,000 to €500,000 of their annual budget in BI. Here’s how BI is utilized in:  

• Planning and analysis: BI dashboards collate historical and real-time data to provide insights on business trends, cash flow, scenario modeling, and variance analyses, to help finance teams compare current performance with what was forecasted. SKF, a Sweden-based global manufacturer, implemented BI as a solution to solve product demand forecasting challenges. They no longer had to rely on outdated Excel spreadsheets as BI allowed them to centralize data assets and improve forecasting efforts between departments.

In addition, BI is a game changer when it comes to:  

• Customer retention: BI gives a comprehensive view of a company’s customer data and financial performance. This is especially important in the financial services industry when it comes to customer retention. For instance, American Express utilized BI to produce new products and offers to customers, as well as protect them from credit card fraud.  
• Financial efficiency: Finance leaders can tap into important business insights using BI platforms to make strategic decisions on the company’s short-term and long-term financial needs. For example, international cement company Cementos Argos invested in an entire business analytics center and hired business analysts to harness BI to streamline decision-making and finance processes. With BI, the company applied BI to gain insights into customer behavior which yielded higher profits.   

 

Environmental, social, and governance (ESG)

Sustainability continues to be a focus area for finance leaders, as investors, shareholders, and consumers take a company’s ESG initiatives into consideration when making purchasing decisions. ESG compliance is a new responsibility for the CFO and has transformed their role from pure finance leader to a more strategic business partner in their organizations.  

Interestingly, there seems to be a disconnect between how organizations perceive their CFO’s duties towards ESG, and how CFOs view themselves in that area. According to this study by Anaplan and Deloitte, 78% of CFOs expressed weakness in addressing ESG initiatives, even though 91% of organizations named it one of their CFO’s top three successes. 

Although 53% of CFOs are keen to make long-term investments in ESG, they face difficulty making finance operations greener due to inconsistent ESG reporting frameworks. A solution has been tabled by the EU in the form of the Corporate Sustainability Reporting Directive (CSRD), which is expected to roll out in October 2022. The directive is part of the larger Sustainable Finance package which aims to channel private investments to transition to a climate-neutral economy. European CFOs will be pressured to produce more regular ESG reports as the directive applies to more companies operating in EU-regulated markets.