What are the key themes to watch in the year ahead? From the energy transition to evolving credit risk, this is what the coming year will look like for businesses.
1: The Energy Transition
The cornerstone of this transition is a proliferation of renewable resources. With a new administration in Washington, the rate of change is only going to increase, as federal initiatives combine with those already in place at state and local levels.
Understanding the drivers of the buildout of renewable generation is key to managing the risks and realizing the opportunities that come together at the intersection of policy, regulation and markets. The evolution also includes broader shifts, such as reducing carbon emissions and deploying advanced technologies that change the way energy users interact with the grid and their local utilities.
2: COVID-19 and the “New Normal”
Whether or not 2021 sees an end to this pandemic, the “New Normal” in the working world is here to stay, as measures implemented in response to the virus are becoming permanent changes.
Our October 2020 Voice of the Enterprise: Digital Pulse Coronavirus Flash Survey saw 64% of businesses planning permanent and significant increases in remote working, while 32% expected a reduction in office footprint. Implementation will continue in 2021, as spending shifts toward resources that support digital methods of workforce collaboration, sales, and customer experience delivery.
3: The Rise of Digital Disruption
The success of every company is increasingly dependent on its ability to embrace a broad range of new and emerging information technologies, such as AI, cloud and emerging security approaches, driving deeper engagement with greater effectiveness and efficiency. The global pandemic has only served to increase the stakes.
One example from the media sector is the rise of streaming services, which sent shock waves through the industry in 2020 as viewing habits were altered due to lockdown orders. Here, 2021 will be a year of competition for subscribers and content rights, of international rollouts, and adjustments to traditional content business models.
4: Diversity and Inclusion
Investors are increasingly pressing companies to have diversity across their leadership teams, boards and organizations. Shareholders are also pressuring companies to disclose more D&I information. They want more data about the makeup of companies’ boards, management teams and workforces.
In recent years, a lot of the discussion around diversity has been about gender — which is often easier to measure than other characteristics like race. That changed in 2020 after the death of George Floyd and now race is a much bigger focus for companies, investors and regulators.
5: Mergers and Acquisitions
Uncertainty caused by COVID-19 dented M&A activity in early 2020, but the pace of deals picked up again towards the end of the year. Among financial institutions, the weakest sector in 2020 was US banks. But earnings headwinds will push banks to do deals in 2021 to gain scale.
After its initial slowdown, the technology sector rebounded strongly last year, with acquirers spending more than $600 billion on big bets in key markets such as enterprise software and semiconductors. Given the blockbuster deals announced in the second half of 2020, the momentum seems likely to roll into next year.
6: Evolving Credit Risk
2020 saw a wave of credit defaults not seen since the financial crisis, driven primarily by COVID-19 and oil price fluctuations.
The big question is: will the global economy get back on track, helping to shore up balance sheets, or will economic stresses and lockdowns drive further defaults to levels that eclipse prior recessions?
The path credit takes will determine the fate of investment portfolios, the health of supply chains, and the reliability of customer bases.