As companies grapple with a ‘triple squeeze’ on finances, CEOs and CFOs say investment in M&A and sustainability will be the first to face cuts if the current economic situation doesn’t improve.
Rising inflation, talent shortages and supply constraints are all taking their toll on companies, says Gartner.
At the start of the Covid-19 pandemic, many expected companies to shift their focus away from ESG issues as executive teams doubled down to keep companies going. Instead, firms continued to prioritize sustainability and other ESG issues, with investors also pouring money into ESG-focused funds. As such, it is surprising to see sustainability on the chopping board if cuts need to be made – something Randeep Rathindran, vice president of research in the Gartner finance practice, also notes.
‘Cuts to M&A are an obvious choice after record activity in 2021 and with rising interest rates significantly increasing the cost of financing such deals,’ he says in a statement accompanying the results of the June research, which surveyed 128 CEOs and CFOs. ‘It’s more surprising to see sustainability so close to the chopping block because CEOs rated it as a top strategic priority for the first time in 2022, and ESG disclosures are increasingly becoming enshrined in legislation.’
More than two fifths (41 percent) of survey respondents name investment in M&A as the area they will likely cut in the face of continued economic disruption. Almost four in 10 (39 percent) say investments for improved sustainability and reduced environmental impact would be the first to face cuts.
The last to go
At the other end of the scale, CEOs and CFOs say human capital and investment in technology will be the last areas they’d be willing to cut. Forty-six percent say spending on workforce and talent development would be the last area to cut, just 1 percentage point ahead of the 45 percent who say digital investments would be last.
Technology investments are also the least-likely first cut, with just 23 percent of respondents placing it in their top two.
Interestingly, while talent and workforce development is the top pick to protect from cuts, a third of respondents also rate it as one of the first areas where they would potentially implement cutbacks. This, explains Rathindran, is likely down to differences across sectors.
‘Companies in service-based industries are most likely to reduce their investments due to the high proportion of labor costs,’ he says. ‘Meanwhile, product-based industries protect these investments as a source of advantage, helping them to maximize human capital.’