An Enriching Outlook
KPMG’s latest report shows energy CEOs being optimistic about the sector’s outlook. Anish De, Global Head, ENRC, KPMG speaks to BW Businessworld’s Arjun Yadav on what’s driving this confidence
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The KPMG 2024 Global ENRC (Energy, Natural Resources, and Chemicals) CEO Outlook report reveals that despite economic and geopolitical instability, ENRC CEOs are optimistic, buoyed by resilient energy prices and growing energy demand. They are focusing on growth through inorganic expansion and operational efficiency while tackling challenges like generative AI (Gen AI), which they see as both transformative and risky. Gen AI investments are significant but come with concerns about ethics, costs, and employee adaptation.
Environmental, social, and governance (ESG) factors are central, with CEOs embedding ESG into business strategies to create value and meet rising reporting standards. While most CEOs target net-zero emissions by 2030, they face barriers like supply chain decarbonisation and skill shortages. Workforce dynamics are also evolving; CEOs prioritise in-office work, talent development, and diversity.
On What’s Driving The Confidence In The Sector:
Energy—whether conventional or renewable—remains essential, as the demand will not fade regardless of geopolitical shifts. This core need for energy provides a strong foundation for the confidence among ENRC CEOs. Additionally, the stability of energy prices, even with ongoing wars, has eased concerns about volatility, making CEOs feel more secure in their growth outlook.
On Strategies In Their Playbook:
They are primarily looking at three strategies: inflation proofing, inorganic growth and ESG initiatives. The softening of inflation is a good thing for any infrastructure sector because they are so intense in terms of investments. However, CEOs must remain vigilant, as inflation could reemerge. While rates may be cut, inflation levels are unlikely to return to previous lows, which is why it’s critical for companies to build a tolerance for inflation into their planning.
Second, as energy systems become more complex, there are increasing opportunities for mergers and acquisitions (M&A). This evolving energy market encourages asset consolidation and flipping, marking a phase where M&A activity is expected to intensify.
On ESG, initially seen as a transformational goal, it has shifted towards compliance due to regulatory demands. This shift is largely because companies need to compile data to meet these standards. However, those who have embraced ESG early on have seen benefits, and companies that are preparing for an ESG-driven transformation post-compliance may eventually stand out in the market. CEOs, therefore, view ESG not just as compliance but as a long-term differentiator.
On GenAI In Energy Sector:
The energy sector, however, has used AI primarily in specialised areas, as energy is a highly complex system. Energy companies need large-scale transformations to fully leverage AI, which CEOs are now beginning to understand. As a result, more companies are gradually adopting Gen AI, albeit with caution, since the technology is challenging to implement in large infrastructure setups. While AI can assist with certain tasks, the final decision should remain with a human. AI should empower humans rather than replace them, especially in complex systems where human judgment is essential.
