Optimism among Irish CFOs is being marred by stymied progress in ESG reporting and digital transformation.
A third (33%) of surveyed Irish CFOs are feeling more optimistic or significantly more optimistic about the financial prospects for their company, which is up 21% from six months ago and on par with Europe’s 34%.
The latest Deloitte Spring Irish and European Chief Financial Officer (CFO) survey found that while 57% of Irish CFOs anticipate a rise in revenue, Europe’s figure stands at a higher 64%.
“Consistent with the idea that what we can’t measure, we can’t improve, ESG reporting is one of the most important tasks facing organisations”
What is being felt throughout the organisations is that the number one concern for CFOs is talent attraction and retention and this appears to be holding back ESG (environmental, social and governance) reporting and digital finance transformation.
The bi-annual Europe-wide survey benchmarks the sentiment of 1,366 CFOs based in 16 countries. The survey heard from 75 CFOs in Irish businesses across multiple sectors including manufacturing, construction, and retail (top three industries) and from large organisations to SMEs.
While a third are feeling more optimistic about financial prospects, some Irish CFOs are translating that into taking a greater risk on their balance sheets, with 15% of those polled viewing it as a good time to take a risk, which is a 10% increase from the last survey in Autumn.
Some of this optimism could be driven by Irish finance leaders now expecting the inflation rate to decline from 8.4% in the Autumn survey to 6.37% in Ireland over the next 12 months, which is marginally higher than the anticipated rate of 6% for the Euro-area. This optimism could also be attributed to their expectation that revenues and operating margins will increase significantly or somewhat in the next 12 months (57% and 33% of Irish CFOs respectively).
Although 57% of Irish CFOs anticipates a rise in revenue, the European figure stands at a higher 64%. Similarly, 33% of Irish CFOs foresee their operating margins rising somewhat or significantly over the next 12 months, which is lower than Europe’s 42%.
“While an uncertain economic future and the cost-of-living crisis has made the past six months challenging for businesses, there are plenty of positive indicators in this survey,” said Daniel Gaffney, Partner and CFO Programme Lead.
“The anticipated growth in revenues and operating margins, a drop in the inflation rate, as well as Ireland continuing to offer a skilled workforce, are all strong reasons for an optimistic outlook.”
The report said that organisations are facing increasing external and regulatory pressures to set and commit to ESG targets and to demonstrate progress through transparent reporting. Having the capability to do this will be essential.
Mirroring concerns about the threat climate change will pose to companies and the role they are expected to play in combatting it, 41% of CFOs highlighted climate change as being a significant risk, which is a four per cent increase from the last survey six months ago. Even though this means that close to half of Irish CFOs highlighted climate change as being a significant risk, the barriers facing companies in reporting ESG relate to the lack of in-house reporting capabilities.
“Consistent with the idea that what we can’t measure, we can’t improve, ESG reporting is one of the most important tasks facing organisations,” said Orla Dunbar, Sustainability Data & Technology Lead at Deloitte.
“It’s clear that a skilled workforce is one of the critical steps in enabling ESG reporting so it’s vital that businesses foster an environment of continual learning and focus on hiring the right talent.”
Over half of Irish CFOs, 52%, see this as their biggest barrier to unlocking their ESG reporting strategy, again emphasising that retaining and attracting skilled and qualified employees is the number one risk for CFOs.
Compounding the challenges of ESG reporting is that nearly half of Irish CFOs, 48%, believe that the absence of a global standard for ESG reporting acts as a barrier to unlocking their organisations reporting strategy.
“The development of a global standard for ESG reporting is another crucial step in building businesses confidence in ESG reporting. There are further developments expected in this area with the finalisation of the ISSB standards and the level of interoperability between global requirements such as CSRD and SEC requirements, which are expected to become clearer over the next year or so.”
CFOs were also asked about developing tax control frameworks to manage tax risk, with ESG concerns driving a rise in demand for transparency and accountability. This was a newly introduced survey question, and 29% of Irish CFOs responded ‘Yes’ to having looked at developing tax control frameworks to manage tax risk in light of ESG concerns.
Digital finance transformation
Similar to ESG reporting, the workforces’ skills and capabilities topped the charts in impeding an organisation’s journey towards digital finance transformation.
“CFOs are increasingly recognising the importance of digital transformation for their organisations. By investing in digital competencies and capabilities, they can harness the potential of digital tools for the whole organisation. This will maximise the return on investment and ensure the organisation remains competitive in the digital era,” Gaffney added.
This is important as an increased use of digital tools is seen as a strategic enabler by Irish CFOs to maintain a competitive advantage. Despite this, Deloitte’s research found that 67% of Irish CFOs identified workforce skills and capabilities as the main obstacle hindering their organisation’s progress toward digital finance transformation. Mindset and a cultural shift were also seen as barriers with 51% of Irish CFOs viewing these as challenges.
One of the ways Ireland has managed to attract business investment over the years has been a reputation for a highly educated workforce. To maintain Ireland as an attractive place to invest, capabilities and skills in ESG reporting and digital finance transformation will need to be developed.
The optimism found in this survey is reflected in the greater number of CFOs forecasting hiring more employees. 42% of Irish CFOs are predicting an ‘increase significantly’ or ‘increase somewhat’ of employees, which is higher than Europe’s 35% and a 22% increase in Irish CFOs from the last survey in Autumn.
“This anticipated increase, higher than Europe overall, shows the continued growth of the Irish economy and the confidence organisations place in doing business here,” Gaffney noted. “This survey also provides useful insight into how Ireland can better prepare our workforce to meet the organisational needs of companies investing in digital finance transformation and ESG reporting.”
Attracting and retaining skilled talent and qualified employees remains the number one concern for CFOs.
Although 87% see this as a significant risk to business, this figure is 9% down from the last survey, and emphasises the need for effective talent development, in particular in ESG reporting and digital finance transformation.