According to a new survey by BDO, CFOs of middle-market companies are expecting a year of record growth compared to last year. While only 38% of CFOs reported strong financial performance in 2021, a full 66% of U.S. CFOs are anticipating a year of substantial improvement in 2022. 

What Are the Drivers for Financial Growth in 2022?

CFOs expect that opportunities related to environmental, social, and governance (ESG) policies, as well as continued improvements in technology, will result in higher profits and overall company performance in 2022. 99% of CFOs involved in the survey indicated that they have at least one stated ESG objective for 2022.

ESG is a philosophy that seeks to emphasize sustainability and socially responsible investing. It may be measured in metrics that indicate how a company is positively serving a social purpose.

Environmental Policies

Companies that have adopted new environmental policies seek to improve:

  • Energy efficiency
  • Biodiversity
  • Climate change and pollution mitigation
  • Waste management

They also aim to reduce greenhouse gas emissions and water usage.

Social Policies

A movement towards establishing strong social policies in corporations has grown over the past two years. These include policies related to:

  • Labor standards
  • Wages and benefits
  • Racial justice
  • Talent management
  • Privacy and data protection
  • Supply-chain management

In addition to the above-mentioned policies, many corporations are now tackling a range of other social justice issues.

Corporate Governmental Policies

Governmental policies involve the management of a company’s environmental and social initiatives. It’s geared towards corporate board compensation and structure, strategic oversight and compliance, and eliminating bribery and corruption.

Acceleration of Digital Innovation

In addition to adopting a mindset of sustainability, successful businesses will continue to adapt to and embrace digital innovation strategies. In the energy sector, companies expect to confront challenges related to cyber security. Similarly, a large portion of the technology sector will be focusing on improving data protection and strengthening overall public trust in their companies.

What Financial Risks Do CFOs Anticipate for 2022?

Surveyed CFOs indicated that they anticipated some risks to growth in 2022. Risks cited include:

Supply Chain Disruptions

Supply chain disruptions were cited by 84% of CFOs as a moderate or significant business risk. 2021 saw a number of supply chain disruptions, driven by lingering effects of COVID-19, as well as a decline in available workers. The so-called Great Resignation has driven millions of individuals to quit their jobs in favor of new opportunities with higher pay and better benefits. 

The Great Resignation has been a hard hit for the warehouse and trucking industry. There is a shortage of drivers available to transport goods from one location to another and fewer warehouse workers to ensure that goods are properly monitored and shipped. Experts believe that supply chain disruptions should begin to taper off in 2022. 

Talent Shortages and Retention of Talent

The Great Resignation has resulted in the loss of talent across a number of different sectors in the economy. Thus, companies have to address the reasons why and re-attract their workers. There has been a significant increase in companies offering flexible working arrangements, higher salaries, and better benefits to build up their staff and attract highly skilled workers. This trend is expected to continue throughout the year.

Tax Reform

Taxes remain a concern for businesses. Potential changes to the tax system proposed by President Biden under the Build Back Better initiative include an increase in C-corporation taxes from 21% to 28%. There may also be changes to capital gains and qualified dividend tax rates.

Potential COVID-19 Resurgences

We’ve seen multiple variations of COVID-19 since it first spread in 2020. The most significant have included the Delta and Omicron variants, which have led to increased regulations around the world as they spread. The potential for additional variants that may cause business interruptions to appear in 2022 cannot be ruled out.

What Strategies Will CFOs Pursue in 2022?

The key buzzwords present in the survey were M&A, collaboration, and joint ventures. 31% of CFOs intend to pursue M&A this year, up from 25% in 2020. The strategic goal for doing so is enhancing digital capabilities and undergoing a digital transformation. 

Within the energy sector, companies seek to prioritize M&A for capital fundraising. Similarly, the life sciences sector is seeking to increase technological investments and pursue collaborations with other businesses as a means to propel growth. Outside of obtaining capital investment, CFOs have indicated a desire to prioritize innovation as a key reason for pursuing joint venture strategies.

The healthcare sector has been battered due to the ongoing COVID-19 pandemic, as well as labor shortages, supply chain disruptions, and debt obligations. Nevertheless, 82% of healthcare CFOs anticipate that their business will thrive during 2022. Those who have taken loans to cope with the pandemic may struggle with debt repayment. However, healthcare CFOs seem positive and ready for financial issues that they may face.

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