The next set of imperatives for CFOs in the Asia-Pacific region

Outlook for national economies and businesses

Meet the trailblazers: Thirty percent of Asia’s CFOs see the horizon through the lens of optimism. An impressive 76% of CFOs surveyed in India expressed confidence in their nation’s economic future.

However, amid this optimism, there also exists a chorus of neutrality. In Japan, for example, a substantial 71% of CFOs take a measured stance, acknowledging the intricate nuances of their economic landscape. Simultaneously, Australia and China find themselves in a state of equilibrium, with half of their CFOs adopting a cautious outlook.

On taking a closer look into different industries, we find differing perspectives to the overall sentiment. For example, 39% of CFOs from the technology, media, and telecommunication (TMT) industry are optimistic about the future outlook of their national economies, whereas only 17% of CFOs from the energy and resources industry share the same optimism.

Overall, optimism and neutrality outweigh pessimism (figure 1). CFOs across Asia-Pacific paint a diverse picture, each adding their distinct brushstroke to the evolving economic outlook. 

Key external risks: Global economic slowdown tops the list

• At the regional level: Across the Asia-Pacific region, 57% of CFOs viewed a global economic slowdown or recession as the top external risk. Geopolitical issues (48%) and national economic slowdown or recession (45%) follow closely.
• Unique concerns in each market: While the above-mentioned risks hold sway across the region, CFOs in Australia stand out: Fifty-one percent expressed concerns around inflation, while 39% are closely monitoring the impact of regulatory or government policy changes. Respondents in Japan (43%) highlighted currency fluctuations as a significant risk; 27% of CFOs in China expressed concern about the impact of regulatory or government policy changes; and 27% of CFOs in India viewed digital and technology disruption as a significant external risk to their business. When it comes to the SEA region, 80% of CFO respondents were worried about a global economic slowdown or recession, and 33% cited capital flight from emerging countries as a concern (figure 3).

Key internal risks: Talent retention is the top priority

• At the regional level: Fifty-nine percent of CFOs considered securing and retaining key talent as their top internal risk, 46% were concerned about change in demand for services or products, and 38% were concerned about their inability to execute strategies (figure 4).

CFO focus areas for the next 12 months

Our survey found that CFOs across the Asia-Pacific region plan to focus on revenue growth (62%), cost control (56%), and productivity improvement (37%) in the next year (figure 6). Across most markets in the region, with the exception of Australia, a substantial number of respondents consistently cited focus on revenue growth as their top priority. In Australia, however, 75% of CFOs cited cost control as their top priority. Priorities do indeed vary across the region. For example, for CFOs in Japan, in addition to revenue growth (48%), finding talent (48%) is a primary focus, which seems to be unique to Japan. For China, while revenue growth (70%) and cost control (49%) remain the top two priorities, 35% of CFOs also said that they would focus on increasing cash flow in the next year, followed by market expansion and core business, at 33% each. 

Changing roles and responsibilities of the CFO

The role of the CFO is now shifting focus from control to influence,¹ and CFOs are finding that their role is now less about giving directions and more about aligning incentives and priorities across a variety of stakeholders. This, however, should not be taken to mean adopting a more passive stance; rather, it is about re-examining how CFOs strike a balance between influence and control. Overall, CFOs also believe that a more broad-based mindset or cultural shift is required in finance functions. They particularly noted the need to empower and motivate their finance talent to think more strategically. Depending on the specific context, this may necessitate reassigning team members, encouraging them to participate in cross-functional projects, or helping them to better connect their day-to-day activities with the overarching business strategy.

An average of 77% of surveyed CFOs at the regional level said that their responsibilities, in terms of expectations from the C-suite leadership team, have broadened slightly to significantly in the last two years (figure 7). Notably, the regional average is being influenced significantly by 86% of CFOs in India. Industry-wise, too, a large number of surveyed CFOs shared the same view.

Spotlighting the emerging imperatives for CFOs in Asia-Pacific

Talent

In this rapidly evolving landscape, where change and uncertainty are the only constants, talent remains the anchor guiding companies into the future. Traditional roles across industries are evolving, with technology advancements poised to disrupt jobs. Yet, it is important to recognise that technology is essentially an enhancer, boosting both innovation and human capabilities. It cannot replace talent. Within this framework, human thought processes and perspectives will be the catalysts empowering firms for a nimble, technology-driven future.

Many companies are re-evaluating their finance operating models, anticipating future business needs while identifying critical talent gaps. Closing these gaps often means looking beyond the traditional boundaries of finance to bring in talent with expertise in data gathering, analysis, and modelling. CFOs recognise the importance of balancing traditional accounting skills with specialised technological capabilities.

CFOs also acknowledge the need to evolve their leadership styles. In response to social movements addressing burnout and overwork, they are embracing a more human-centric approach, demonstrating greater personal empathy. In the Asia-Pacific region, in addition to recent models of working such as remote and hybrid, CFOs grapple with two critical imperatives:

1. Attracting and retaining top talent
2. Skilling, reskilling, and upskilling of the existing workforce

Key insights on attracting and retaining top talent

• Career progression: A resounding 73% of CFOs in Asia-Pacific pointed to lack of career advancement opportunities as their primary workforce challenge (figure 8). 

It is interesting to note that a relatively low proportion of CFOs are using artificial intelligence and machine learning algorithms as enablers in finance. Given the potential of generative AI to cut costs, increase efficiencies and productivity, and improve forecasting ability, this low uptake suggests caution.

However, the use of technology continues to vary across the region. Seventy-four percent of CFOs in SEA are using technology for electronic invoicing compared to a regional average of 53%. Similarly, in Japan, 86% of CFOs are using technology for shared operating and service platform, compared to a regional average of 43%. Further, 52% of CFOs from the consumer industry are leveraging big data analytics and processing across the finance function. Take Tata Motors, a leading global automotive manufacturer based in India, for example: The company credits its data-driven approach for helping it overcome the pandemic-induced challenges to its business. This approach provides a vision of how digital transformation goes beyond survival, opening the organisation to brand-new opportunities. Tata Motors plans to incorporate telematics data from customer fleets, route optimisation data, and government regulations to optimise its operations.³

Sustainability and ESG

Many companies in the Asia-Pacific region are faced with an urgent challenge: addressing the imperative of climate change. The region’s regulatory landscape is undergoing a transformation as governments and policymakers transition from voluntary disclosures to comply-or-explain disclosures, to mandatory disclosures (figure 12).

As the reporting landscape evolves and companies make bigger commitments towards climate change and sustainability, the role of the CFO will inevitably evolve and encompass new, and perhaps unique, responsibilities. Forty-eight percent of CFOs in the Asia-Pacific region said that their primary role in responding to climate change imperatives is to increase transparency around financial data relating to sustainable development. A significant majority of CFOs in China (65%) and SEA (52%) shared this view. Another 14% of CFOs in the region said that their primary role would be to integrate climate change risk management into budgeting, financial reporting, and capital allocation, whereas, for 12% of CFOs, the primary role involved advancing corporate green investment and financing.

Industry-wise, 77% of CFOs from life sciences and health care and 55% from manufacturing stated that their primary role in responding to climate change imperatives is to increase transparency around financial data. Further, 17% of CFOs from the energy and resources sector said that their primary role would be to advance corporate green investment and financing, whereas 18% of CFOs from financial services industry and the manufacturing industry each said that their primary role would entail integrating climate change risk management into budgeting, financial reporting, and capital allocation.

Trust and governance

Trust and governance are fundamental to all the other three imperatives of technology, talent, and ESG/sustainability reporting/disclosures. For any process or system transformation to be effective, it must be underpinned by trust and governed by verifiable data. Building trust hinges on robust data governance, particularly in financial reporting and finance digitisation, where ESG or sustainability reporting requires data-backed verification for credibility and substantiation of claims.

As rules and regulations around climate reporting are still evolving and can be fairly disparate across regions, it is challenging for CFOs to comprehensively attain the level of transparency that is required. Currently, the proliferation of multiple sustainability-reporting frameworks and guidelines across jurisdictions and the inconsistent manner in which data is being collected, verified, and reported have created significant disclosure challenges and resulted in poor ESG data comparability.

Further, CFOs in Asia must use data to establish common platforms of understanding and collaboration.⁴ Given their traditional role as guardians of financial information, CFOs in SEA acknowledged that finance functions may sometimes display a tendency to be overly protective of data. But as CFOs seek out ways to build trust and add value in times of change, a more open stance on data-sharing could go a long way towards establishing common platforms of understanding and collaboration between different business units.

For example, CFOs dealing with shadow finance organisations—where individual business units set up their own “in-house” finance teams in response to the perception that they are unable to receive the support that they require from the central finance organisation—have shared that improvements to data-sharing processes have helped to enhance overall alignment and execution, as these teams become better connected and trusting of the central finance function.

Recognising that the technology, ESG, and talent imperatives need to be built on a robust foundation of trust and governance, countries in the region are taking legislative steps to build such a foundation. For example, in Singapore, overall trust in corporate governance has reached a new high for listed firms in 2022,⁵ with the 2022 Singapore governance and transparency index⁶ showing that scores improved across two categories since the index was first compiled in 2009.

Additionally, there are several ongoing industry-level efforts in Singapore to improve trust in corporate sustainability disclosures.⁷ For example, the Monetary Authority of Singapore (MAS) and Singapore Exchange (SGX Group) have jointly launched ESGenome, a digital disclosure portal where companies can report ESG data in a structured and efficient manner and investors can access this data in a consistent and comparable format. Meanwhile, in Japan, several initiatives that can lead to engendering trust are being seriously taken up by companies. For example, the Japanese Corporate Governance Code and Guidelines for Investor and Company Engagement was updated in 2021, and one of the main revisions calls for the inclusion of “promoting diversity,” which is defined as companies disclosing policies and adopting voluntary targets to promote diversity in senior management through the appointment of women, non-Japanese people, and mid-career professionals.⁸

Recommendations to navigate the complexities ahead

Changes in technology and regulation are affecting the CFO’s priorities in Asia-Pacific, making the transformation of the finance function a necessity. Achieving a deeper integration between finance, business, and technology is essential for evolution, shifting the CFO role from traditional guardians of data and accounting to value creation. As CFOs in Asia-Pacific navigate this transition, the following four recommendations can help them anchor their efforts and create a robust foundation for the way forward:

1.    Enhance organisational strategic agility through stronger scenario analyses

Survey results show that a mere 15% of CFOs at the regional level actively engage in scenario analyses. While CFOs may not serve as the first line of defence in risk management, their roles as custodians of their company’s financial well-being can be expanded to combine strategic risk management with opportunity identification. Balancing risk with opportunity would require enhancing the capability to perform scenario analysis and stress testing, given the strategic need to be more agile in a rapidly changing environment. To effectively change course when required, CFOs should consider establishing dedicated scenario analysis teams focusing on the following risks:

• Financial: As the primary overseer of the company’s capital structure, moving beyond single scenario analysis towards multi-scenario analysis to assess the collective impact of risks on the investment portfolio and overall returns becomes essential for CFOs. Survey results show that only 17% of CFOs at the regional level actively engage in stress-testing business models. To diversify financial risks, the establishment of separate capital pools in different global regions also becomes a necessity.
• Strategic: Conducting periodic stress tests on the business portfolio and the necessity to scrutinise intermediaries and subcontractors are becoming increasingly important. Both actions bear implications for the likelihood of achieving strategic objectives and business sustainability. Survey results show that a mere 9% of CFOs in the region engage high-quality intermediaries and subcontractors. Adopting a mindset of organisational strategic agility that stress tests possible headwinds and strengthening the due diligence processes could well be the preparation needed to deliver stronger results during moments of disruption and challenge.
• Climate: As the CFO role expands to encompass ESG and climate change priorities, enhancing climate risk modelling becomes imperative for CFOs in the future. The skills required for climate risk assessment may differ slightly from traditional CFO roles, necessitating the attraction of suitable talent or the reskilling of existing talent in climate risk assessment.
• Governance: Survey results indicate that only 9% of CFOs in Asia-Pacific consider governance risk a top business priority, with Japan leading in the region at 24%. As CFOs harness technology’s potential, especially generative AI, elevating trust and governance in technology across all markets and industries becomes essential.

CFOs should acknowledge their integral role within a broader ecosystem and proactively engage with legal counsel, risk management teams, and business unit leaders to simultaneously manage critical risks and balance them with harnessing opportunities.

2.     Play a larger role in strengthening sustainability initiatives

Today, climate and sustainability imperatives are taking centre stage and becoming a critical part of organisational agendas. As companies across the region allocate more funds to expand their sustainability initiatives, CFOs will find themselves in a unique position—strategically balancing profitability and climate impact. CFOs’ responsibilities in terms of sustainable development mainly involve disclosing information related to climate risks, conducting environmental impact assessment, and accounting for corporate carbon emissions. For example, the expansion of China’s green finance market and increasing demand for corporate carbon emissions audit are expected to broaden the CFO’s role in the field of sustainable development.

The broadening of the CFO role could translate into two things: One, it highlights the need for CFOs to upskill or add new skills that can help them contribute to the climate imperative, especially from the data governance and data collation capacity. And two, it could lead to the impending rise of the chief finance and sustainability officer (CFSO), an emerging career pathway for the CFO.⁹ The CFSO is a relatively uncommon yet increasingly important position, typically seen in companies with well-developed sustainability initiatives and commitments. The CFSO, positioned above CFO and CSO functions, is responsible for overseeing the integration of finance and sustainability into the organisation’s business strategy. Individuals in this role would typically have a background in accountancy, as integrating sustainability into business operations requires intimate and in-depth knowledge of finance. This puts accountancy and finance professionals in an advantageous position to lead their organisation’s sustainability agenda and take on the role of CFSO. This presents a potential career option for today’s accountancy and finance professionals to consider for the future.

3.     Invest in the finance team and align incentives beyond remuneration

As organisations grow in size and complexity, traditional roles within the C-suite are metamorphosing to become broader, with boundaries between functions becoming more fluid. To navigate the complexities of an evolving economic and business environment while optimally harnessing the power of technology, CFOs must surround themselves with top-tier talent. This means that attracting and retaining talent is no longer the bastion of the human resource function.

CFOs must continue to invest in understanding their teams and align incentives that go beyond remuneration. They must prioritise coaching, mentoring, and leadership development and help team members define clear pathways that align professional goals with the organisation’s strategic goals. In addition to spending time on individual succession planning, CFOs must also plan for key roles in the organisation, ensuring an optimal balance of technical, analytical, and leadership skills within their teams.

4.     Become champions and stewards of digital technology

For organisations that are looking to thrive and lead in the next few decades, access to timely and accurate data and the ability to leverage generative AI to augment finance productivity and decision-making have become crucial. According to our survey, only a small fraction of CFOs is actually leveraging big data and analytics or actively seeking AI and machine learning solutions to enhance their function. However, even as technology is set to play an increasingly important role for the CFO, it must be underscored that success will hinge upon two factors:

1. The accuracy, availability, and consistency of data
2. The presence of a robust, agile, and integrated technology infrastructure

Companies that can put these foundations in place will find themselves better positioned to navigate the uncertainties of the business and economic landscape and strengthen their competitive advantage. This is where the CFO of today will come to play an integral role. Investment in digital technology, especially generative AI, will be a key orchestrator of transformation and vital to both managing complexity and driving productivity. To accomplish the many things expected of CFOs today, CFOs must learn the digital language and raise their game to make the right investments in technology at the right time, and holistically leverage technology in a way that yields optimal value for the organisation.

Appendix

Voluntary to mandatory: The following are some of the recent developments and initiatives that are being implemented across the APAC region as countries transition from voluntary to mandatory climate and ESG reporting:

• Australia: Mandatory reporting under the ISSB Climate reporting standards will be phased in progressively over three years in Australia commencing in FY25. The extent of disclosure required, and hence, the extent of preparatory work on underlying systems and processes, is extensive.
• Singapore: The Singapore Exchange has introduced a phased approach to mandatory climate reporting based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).¹⁰ The trend of ratcheting up of the level of obligation and the scope of disclosures is likely to continue. Unfortunately, in markets where disclosures are voluntary, the progress has been slow, as the decision to disclose remains largely at the discretion of the issuer.
• China: The country has moved from a voluntary disclosure regime to a mandatory one, pushing for increased regulation on listed companies, financial institutions, state-owned enterprises, and enterprises operating in highly polluting industries. For example, in April 2022, the China Securities Regulatory Commission published new rules on Investor Relations Management Guide for listed companies, which emphasised information disclosure of ESG issues. The rules took effect from May 2022. Additionally, the Hong Kong Stock Exchange announced that it will prioritise aligning its climate disclosures standards with the recommendations of the TCFD and ISSB standards.
• India: The Business Responsibility and Sustainability Reporting (BRSR) framework is aimed at helping entities integrate sustainable and responsible practices into their business operations. Introduced in 2012 as Business Responsibility Report (BRR), the Securities and Exchange Board of India (SEBI) mandated that the top 100 listed companies in India by market capitalisation needed to file a BRR. By 2021, BRR evolved into BRSR, making it a comprehensive ESG-reporting framework mandated for India’s top 1000 listed companies (by market capitalisation). Further, select key performance indicators under the BRSR, referred to as the BRSR Core, will be subject to mandatory reasonable assurance in a glided path starting from FY23–24 until FY26–27. The BRSR shall provide disclosures about the sustainability parameters for the companies and will enhance comparability of this information.
• Japan: The Sustainability Standards Board of Japan (SSBJ) has developed a Japan-based standard equivalent to the IFRS standard (announced by the ISSB) and aims to deploy it within a few years. In addition, with the range of mandatory sustainability disclosures gradually expanding (for example, a new requirement set up in the Annual Securities Report to address the company’s perspectives and initiatives on this matter), it is expected that the finance function would need to prepare for broader-than-ever disclosures.

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