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Private Equity Insights Q4 2023

3 min read

Q4 2023

The big picture: As 2024 begins, the economy and markets are showing some encouraging signs, with inflation stabilising and interest rates poised to remain where they are or even start to come down in the coming year. Private equity leaders are hopeful this leads to a more active IPO and M&A cycle this year.

But challenges remain: Cyber threats loom large. Geopolitical conflicts around the world threaten near- and long-term stability. Sustainability reporting requirements are emerging in different countries and regions. And the economic outlook is such that the slightest negative news could swing markets into a more pronounced downturn.

In our latest issue of Private Equity Insights, we provide a rundown of the results from our annual Top Risks Survey, looking specifically at responses from and concerns expressed by board members and C-suite leaders with PE firms and PE-owned entities. We also dive into the latest developments on the AI regulatory front and explore the role of internal audit in sustainability reporting.

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The manner in which failure is embraced instead of feared in a business can improve the way the company evolves and responds to new market opportunities.

At a recent National Association of Corporate Directors Master Class event, Protiviti moderated a discussion among the participating directors about making innovation work in today’s rapidly evolving and disruptive markets.

The premise underpinning the conversation was that the risk-reward balance of years past with respect to innovation may not be suitable in the years to come.

The big picture is one of constant change fostered by disruptive technologies — generative AI, the metaverse, digital twin solutions, quantum computing, the ever-expanding Internet of Things, and increasing broadband speed and access.

The effect of technical debt and the likelihood of waves of regulation to protect consumers from harm and avoid unwanted consequences are also relevant considerations.

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What’s new: ESG guidance, stakeholder demands and regulatory mandates are evolving and becoming more specific, and the time of taking a “soft approach” to sustainability reporting has passed. As the need grows to provide, or prepare to provide, limited and/or reasonable assurance in sustainability reporting, internal audit’s role in the reporting process becomes obvious and essential.

Why it matters to private equity: Sustainability disclosures must be backed by high-quality, “regulator-grade” data. The internal audit function, with its understanding of the entire organisation and intimate knowledge of internal controls, is well-suited to validate the accuracy and reliability of the data that is used in ESG reporting.

The bottom line: Internal audit has a substantial opportunity in helping businesses meet their sustainability reporting obligations and assess ESG risks by imparting operational, technology and financial reporting assurance expertise and bringing together senior leadership, boards and other key parties that have a role to play in providing auditable sustainability reporting.

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