IN BRIEF:
- 60% of Asia-Pacific board directors identify economic conditions as their top concern for 2024
- Despite the increasing severity of climate-related risks, only 21% of Asia-Pacific board directors consider climate change a priority
- Demand for data analysts in the Philippines outpaces graduate supply, creating a skills gap due to misalignment between education and industry needs
PULL QUOTE: “Boards must keep their finger on the pulse of economic indicators to be able to pivot strategies effectively—and quickly—across multiple fields of play when required.”
The Asia-Pacific region is proving its mettle amidst increasing economic and geopolitical complexities. However, for boardrooms across the region, maintaining a competitive edge will require more than just resilience. It calls for an agile, globally interconnected approach that can quickly adapt to the shifting landscape.
While much of the world braces against economic headwinds, the Asia-Pacific region is positioned to lead the charge and expected to contribute nearly 60% of global GDP growth in 2024, surpassing pre-pandemic benchmarks. Underpinned by robust performance across national economies, this optimistic outlook has nearly three-quarters of Asia-Pacific CEOs forecasting higher revenue growth and profitability for the year ahead.
However, this promising forecast comes with its own set of challenges. Boardrooms are under pressure to navigate a mix of pressures — with inflation, rising labor costs, and geopolitical tensions topping the list of concerns.
The latest 2024 EY Asia-Pacific Board Priorities survey shows that economic conditions are the primary agenda of 60% of board directors this year. Beyond these economic pressures, capital allocation and talent shortages are also emerging as key pain points that boards need to tackle head-on. Given these dynamics, boards must keep their finger on the pulse of economic indicators to be able to pivot strategies effectively—and quickly—across multiple fields of play when required.
This article will discuss the critical challenges Asia-Pacific boards face in 2024 and strategies to turn them into competitive advantages in the evolving global marketplace.
Capital allocation pressure
As inflation, rising operational costs, and diminishing pricing power bite the bottom line, Asia-Pacific boards are moving their focus from growth-at-all-costs strategies to a more nuanced focus on financial discipline. The survey reveals that two-thirds of directors are increasingly concerned about capital availability, with 56% grappling with the complexities of mergers and acquisitions, restructuring initiatives, and divestiture decisions.
Despite the unique challenges of the current economic landscape, boards can still rely on fundamental oversight practices in capital strategy. These practices include regular reviews of capital budgeting and strategic plans to ensure agility and alignment with corporate objectives, maintaining a competitive edge in the global marketplace.
Boards should also prioritize the right metrics, balancing short-term key performance indicators with long-term value creation goals and using a balanced scorecard that integrates financial, non-financial, and qualitative indicators.
The rise of Gen Z workforce
Talent management is one of the most crucial priorities for Asia-Pacific boards as they prepare for an AI-driven future. By 2025, Generation Z—those born between the mid-1990s and 2010—is expected to make up 27% of the region’s workforce. This generation is characterized by being digital savvy, having a purpose-driven mindset, and a preference for flexibility.
Given these traits, boards are challenged to reimagine their approach to talent development. Those that successfully integrate the unique perspectives and skills of this generation can gain fresh insights, enhancing their capacity to innovate and stay competitive. However, achieving this requires more than merely recognizing the value of younger talent. Boards must foster an organizational culture that prioritizes innovation and embraces diversity, equity, and inclusion.
AI-fueled people-centric future
Asia-Pacific boards are rapidly embracing Generative AI, with 40% of directors prioritizing digital transformation and business model changes in 2024. As AI-generated data becomes more prevalent, boards must ensure executives exercise proper oversight, making data governance a key priority. Companies must establish guardrails and ensure compliance with evolving regulations.
Meanwhile, the growing reliance on data-driven decision-making and AI is sharply increasing demand for specialized skills in data science and AI. A report by the Philippine Institute for Development Studies (PIDS) highlights a rising demand for data analysts in the country, but higher education institutions are currently falling short in producing enough graduates to meet this need. The report highlights that data science and analytics skills remain underdeveloped within the Philippine workforce due to a disconnect between educational institutions and industry requirements.
Although several undergraduate degrees, such as computer science, business administration, statistics, and others, serve as pathways for data science and analytics (DSA) careers, they currently lack specific training tailored to industry demands. This highlights the need for boards to recognize the strategic value of these skills and take proactive steps to develop the talent essential for long-term growth and innovation.
Thriving in Asia's green economy
As Asia continues to position itself as a key player in the global green economy, businesses across the region have a unique opportunity to capitalize on this shift. The Philippines, for instance, has made significant strides in climate action, ranking sixth out of 67 countries in the 2024 Climate Change Performance Index (CCPI) and fifth out of 10 countries in the Southeast Asia Green Economy Index.
These feats underscore the country's progress in reducing greenhouse gas emissions and developing renewable energy. However, both highlight the country's ongoing challenges in climate policy and ambition, revealing a significant gap in government and corporate decarbonization strategies.
For businesses to thrive in Asia’s burgeoning green economy, boards must adopt a long-term, strategic approach. While current returns on clean energy investments may lag behind traditional sectors, the potential for future growth is immense. As highlighted in the 2023 EY Global Board Risk Survey, the most resilient boards are those willing to sacrifice short-term financial gains for the long-term benefits of environmental, social, and governance (ESG) commitments.
To truly capitalize on Asia’s green economy, businesses must align their capital allocation with ESG objectives, ensuring that their strategies are not just reactive but proactive in driving sustainability. This requires a commitment to meticulous planning, sustainable investments, and the integration of ESG into the core business model.
The climate urgency
Despite the urgency of the climate crisis, it remains a secondary concern for many Asia-Pacific boards, with only 21% of respondents identifying it as a critical issue. Nearly half of these directors cite insufficient information as a barrier.
The recent EY Sustainable Value Study reveals that some organizations are scaling back their commitments to net zero and modestly reducing investments in sustainability. Larger organizations, particularly those with revenues exceeding USD $5 billion, are more likely to prioritize climate action (47%) compared to their smaller counterparts (13%). However, this shortsightedness threatens the long-term sustainability and resilience of these businesses.
To thrive in a decarbonizing economy, boards must recognize climate action as essential to long-term value creation rather than a mere compliance issue. By embedding ESG considerations into their strategies, boards can move sustainability from aspiration to committed action.
What it means to be future-fit
Asia-Pacific boards must embrace a transformative mindset and develop tailored governance models to navigate 2024 and beyond. While the need for change is evident, the path forward will vary by organization, depending on their current state, maturity, and strategic vision.
Prioritizing key issues, reassessing long-term purpose, and defining what it means to be future-fit will be essential for boards.
Marie Stephanie C. Tan-Hamed is a Strategy and Transactions (SaT) Partner and the PH Government and Public Sector leader of SGV & Co.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
