Three priorities for APAC boards to rebuild stronger

Organizations in Asia-Pacific have a unique opportunity to set the tone for new ways of doing business. Their boards can drive the change.

Recently, the EY Global Center for Board Matters wrote about how boards can use the EY Megatrends to develop the “futurist” mindset that will keep their organizations sustainable in the long-term.

Boards are fully in focus as society shifts in a post-pandemic world, and organizations in Asia-Pacific have a significant opportunity to lead from the front. Patrick Winter, EY APAC Area Managing Partner asserts that, “For businesses and investors looking for bright spots in this challenging global economic environment – Asia-Pacific and its leading economic engines offer the greatest reasons for optimism.” They experienced COVID-19 first, and their governments and broader communities took swift, decisive action to manage the crisis in a systemic and highly coordinated way. As such, they’re now in a leading position to re-set the tone for how organizations adapt their operations to make a positive impact on society for years to come.

Boards will play a bigger role than ever in steering their organizations along this new path. They will do this by overseeing the effective management of the risks the pandemic has exposed, but also by helping to repair social contracts and address societal challenges. Yet, our Global Board Risk Survey identified that only 43% of board members in Asia-Pacific felt their organization was “more than somewhat effective” in managing atypical and emerging risks, compared to 58% for traditional risks. This indicates that board members have a way to go in supporting their organizations through the process.

With this in mind, we’ve identified three issues we believe should be top of mind among board members in the region. While these priorities complement the ones identified for boards in the US and EMEIA, they also reflect the unique blend of challenges and opportunities facing boards in Asia-Pacific more specifically.

1. Leading the drive to combat climate change

Evidence shows climate change takes a particularly big toll on APAC markets. Which is likely why in the 2019 EY CEO Imperative survey more CEOs in Asia-Pacific (40%) cited it as a top global challenge than any of their counterparts in the Americas or Europe. In the same survey, investors globally ranked climate change as the joint number one issue along with national/corporate security. However, more important than the ranking perhaps is their expectation that CEOs respond appropriately.

COVID-19 pandemic has upped the ante by unveiling unsustainable business practices. It’s also shown that climate action is integral to becoming a resilient, responsible organization that puts long-term impact over short-term gain. And many governments, including China, Japan, South Korea and New Zealand, have announced plans to use their economic recovery to stimulate low-carbon industries in their respective nations.

Investors are also raising the stakes: according to the 2020 EY Global Institutional Investor survey (pdf), they’re evaluating ESG disclosures more rigorously. At the same time, they’re factoring in disclosures made as part of the Task Force on Climate-related Financial Disclosures (TCFD) framework.

With the backing of investors and government, board members in Asia-Pacific are in a prime position to advocate for their organizations to reduce their carbon footprint.

But the 2019 EY Global Climate Risk Disclosure Barometer shows that Australia was the only market in Asia-Pacific to make the list of top performers. Meanwhile, China, Indonesia and Malaysia continued to rank among the lowest performers, signaling across all markets that there’s an opportunity to improve.

The key to success will be boards that support their executives in building digital trust across recently deployed emerging technologies, such as blockchain, intelligent automation and artificial intelligence. Patrick Winter believes “Asia-Pacific is far more adept at accommodating the transformative nature of new technologies, as some markets have faced decades of rapid change, while for others, rapid change is underway.” Boards will need to understand what these emerging technologies mean for their organization; the risks they bring, and the role of the Audit Committee in managing those risks.

3. Planning for a wider range of business transformation scenarios

In March 2020, when we published the EY Global Capital Confidence Barometer (CCB), organizations in Asia-Pacific were already feeling the impacts of COVID-19. What’s more, 55% were expecting a U-shaped recovery that would extend well into 2021.

As a result, respondents were being extra-cautious by revisiting financial plans, renegotiating contracts and monitoring how direct cost increases would affect their margins. But at the same time, many planned to take advantage of lower valuations and a rise in distressed assets coming to market, either to support their transformation agenda or to build resilience. According to the CCB, 52% of Asia-Pacific respondents said they intended to pursue M&A transactions in the next 12 months.