Dive Brief:

• While cost-cutting once again remains the top priority for CFOs and senior finance leaders this year, they are also increasingly identifying geopolitical tension and war as a “top-three risk” that their businesses face, according to a U.S. Bank report that surveyed more than 2,000 executives about their outlooks on a wide range of issues in January and February.
• Nearly half (44%) of respondents said cost-cutting and driving efficiencies was their finance function’s top priority this year, up from 38% last year and nearly double the 23% who said it was at the top of their to-do lists in 2021. At the same time, the share of respondents who named geopolitical risks as a top worry rose to 26% in the latest survey from 17% in 2023 and 2022, according to the results of the U.S. bank CFO survey released Thursday.
• “For a while the markets didn’t react much to some of the geopolitical events but with [events like] the activity in the Middle East we’re seeing companies react very quickly now in terms of hedging strategies,” Stephen Philipson, head of global markets and specialized finance at U.S. Bank, said in an interview. CFOs and treasurers are hedging against interest rate risk, shifts in foreign exchange and volatility in commodity prices, he said.​​​​​​

Dive Insight:

To be sure, the top-three worries remained talent shortages, digital disruption and cybersecurity attacks/data breaches. At the same time, geopolitical worries have risen from 10th position to fourth, according to the study.

The focus on risks related to global political upheaval is not altogether surprising given the Israel Hamas conflict in Gaza that has rocked the Middle East and the continuing war in the Ukraine. But the findings represent a shift in outlook, with executives perceiving the conflicts and geopolitical disruption as a deepening threat. It has risen while concerns about high inflation slipped this year in the risk ranking, with only 25% of respondents citing inflation as a top problem compared to 38% in 2023.

Amid the uncertainty, the report noted that finance teams will need to quantify the potential impact of disrupted supply chains and declining demand in certain regions and propose mitigation measures, the report states.

U.S. Bank CFO John Stern noted that the finance leaders’ focus on global issues represents an ongoing shift in their roles, he said in a statement included in the report.

“The role of the CFO has changed drastically in just five years,” Stern said. “We used to mainly be preoccupied with forecasting, planning and investment management. Now, managing potential risks around inflation, cybersecurity and political matters has also become a high priority,” he said in the report. 

Looking ahead, the study suggests CFOs seem to feel they have some hedging homework to do, with nearly six out of 10 CFOs stating they need to improve both their interest rate and foreign exchange hedging strategies. But some are investigating how artificial intelligence and financial hedging can help them manage risk better.