AI, sustainability, capital and M&A find place in CEO priorities in 2023, reveals EY study

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CEO priorities in 2023

A recent comprehensive study conducted by EY sheds light on how CEOs envision the role of artificial intelligence (AI) in their organizations, their perspectives on sustainability initiatives, and their strategic approaches to capital allocation and mergers and acquisitions (M&A). It reveals that CEO priorities in 2023 are focused on creating value, driving growth, and navigating the complexities of an evolving business environment. Read to know the key findings of this study titled “CEO Outlook Pulse – July 2023”.

CEOs are embracing the benefits of AI but with vigilance

CEOs are optimistic about AI’s potential to drive productivity and create positive outcomes for society, particularly in fields like healthcare innovation. They believe AI can generate new roles and career opportunities, countering fears of massive workforce displacement. Despite their optimism, CEOs express significant concerns about the potential unintended consequences of AI. The study highlights that 65% of CEOs believe more work is required to address the social, ethical, and criminal risks inherent in the AI-fueled future. Issues such as cyberattacks, disinformation, and deepfakes raise apprehensions about the technology’s potential misuse and negative impact on society.

Governments and businesses both have roles to play in addressing these risks. CEOs recognize the need for policymakers and regulators to establish rules and guidelines governing AI usage, and they also acknowledge the business community’s responsibility to engage in ethical discussions regarding AI’s impact on various aspects of life, including privacy and online security.

Shifting CEO priorities bring sustainability initiatives to crossroads

While AI presents opportunities for accelerating sustainability efforts, CEOs’ priorities concerning capital allocation for sustainability remain divided. Approximately 38% of CEOs prioritize sustainability in their capital allocation decisions, while 34% do not prioritize it at all. The remaining 28% view sustainability as on par with other business priorities.

Interestingly, the study reveals that there is a significant shift in investor sentiment towards sustainability-friendly businesses. About 76% of investors are now willing to accept lower returns when a company positively impacts the environment and society. However, CEO priorities regarding sustainability seem to have shifted towards short-term financial performance. In order to meet the expectations of stakeholders, CEOs must explore more effective approaches to communicate strategic performance using a combination of nonfinancial and financial metrics. This will bridge the gap with investor expectations and align with the growing demands of stakeholders.

Smart capital allocation to drive long-term growth

Capital allocation plays a pivotal role in driving value creation and must be intricately linked to the overall corporate strategy. It should encompass all aspects of capital utilization and acquisition, such as investments, returning capital to shareholders, and even divestitures. Looking ahead, 29% of CEOs plan to maintain cash reserves for future opportunities or unforeseen challenges. Meanwhile, 26% are inclined to allocate capital towards mergers and acquisitions, and 25% intend to invest in organic growth initiatives.

CEOs prioritizing either organic growth or mergers and acquisitions (M&A) as their company’s primary capital allocation strategy, seek to achieve goals like enhancing technology capabilities, introducing new products, expanding into new markets, acquiring new skills, and building strategic partnerships.

Mergers and acquisitions to steer through an uncertain future

59% of CEOs plan to make acquisitions in the next 12 months, showing a significant increase from the beginning of the year (46%). Additionally, 47% of CEOs are considering divesting assets, indicating a strong sentiment towards deal making in 2023 and 2024.

The deal market had a slow start in 2023 but saw a pickup in deals during the second quarter. CEOs are acknowledging the new realities of deal fundamentals, such as bridging wider valuation gaps, dealing with more expensive funding, and facing increased regulatory scrutiny.

CEOs are leveraging AI and other technologies to improve their M&A processes. Only a small percentage (5%) of CEOs are not using AI capabilities or have no plans to do so, putting them at risk of falling behind the competition in deal-making efficiency and effectiveness.

CEOs must navigate a complex landscape, balancing long-term success with immediate challenges. To succeed in this dynamic environment, they are prioritizing proactive strategies, data-driven decision-making, and prioritizing capital allocation and M&A. By doing so, they can create value, foster growth, and keep their organizations competitive amid the ever-evolving business landscape.

Source: EY

Read next: 75% of CEOs acknowledge advanced generative AI as the gateway to success – IBM Study

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