The Insight: on driving growth in 2025

If 2024 was another year of uncertainty, will 2025 be a year of greater stability and growth???

In our last edition of the ‘The Insight’ of 2024, we share how we think professional services can help drive growth in our response to the Government’s Modern Industrial Strategy. We look at the role of AI in driving growth, and how it’s transforming the finance function. We talk sustainable finance and how it’s good for people, planet and profits. And we discuss the role of the ‘activist leader’ in achieving sustainable growth.?

How professional services can help drive growth?

The Government will be hoping 2025 is a year of growth. And central to its efforts to deliver that will be its Modern Industrial Strategy.?

We had a fascinating discussion about the Strategy on our latest ‘Insights for leaders’ event, where we were joined by the CBI and Eurasia Group. The focus on regional growth got a big thumbs up.

We were also delighted to see professional and business services named as one of eight priority growth sectors. Jon Holt, our Group Chief Exec, has shared a five-point plan for how our sector can drive economic growth:?

1. Foster a new partnership between Government and professional services. And let’s build that around a ten-year policy roadmap that amplifies the role of services in driving UK growth.?
2. Establish a world-class regulatory framework for the UK economy. It should be proportionate, robust and sufficiently agile to respond to a changing business landscape. Let’s start by speeding up audit and corporate governance reforms.?
3. Build a professional services workforce fit for the future economy. We need to enable professional and business services firms to attract the best domestic and global talent in areas like digital and ESG.?
4. Create a more productive sector enabled by AI. We’d like to see a new Early Adopter Scheme that rewards the adoption of new technologies within the sector, and a more liberal approach to sharing high-quality public sector data.?
5. Take an ambitious approach to strengthening regional prosperity. Significant investment to improve regional transport and connectivity will allow professional services firms to fulfil their potential as key regional growth enablers.?

Read our full response to the Modern Industrial Strategy?

?You can transform your finance function with AI?

It’s no secret, we’re big fans of AI here at KPMG. We reckon that with AI, you can transform your business, delight your customers, accelerate compliance … in fact, just about anything seems possible. And we’re confident that AI is going to have a big role to play in driving growth – not least in our own sector.?

We recently released new research on the impact AI will have on transforming the finance function. In the UK, companies are already deploying AI in every part of finance. They’re furthest ahead in financial planning and accounting teams where AI provides improved data processing and real-time insights.??

New tech always comes with new risks. Our research suggests you’re all doing a good job of prioritising them. But there are some blind spots. The ‘black box’ nature of AI – the lack of transparency in how answers are derived – can lead to a lack of trust. Sustainability is another issue, with AI consuming lots of energy.?

So how can you avoid the blind spots and overcome barriers to AI adoption? Here are the top steps the leaders from our research are taking:??

• Develop guidelines on the responsible use of AI?

• Involve tech leaders in systems integration to promote AI enablement?

• Validate ROI through pilots or limited use cases?

• Create digital processes to keep up with regulatory and compliance changes?

• Build better systems for gathering, integrating and sharing data.?

Read our AI in finance report??

Sustainable finance: good for planet and profits?

It’s not just AI that’s a promising growth area for the UK. There’s a huge opportunity in becoming a leader on sustainability.?

In another new KPMG report, [our teams have been busy!] we look at how banks can profit from sustainable growth.?

If we’re going to achieve a sustainable future, we can’t rely on public sector financing alone. Just look at the gap between the $1.3 trillion a year developing countries were asking for at COP29 and the $300 billion a year that was pledged. It’s going to take private capital – and that’s a real opportunity for our banking sector.?

Our new report identifies four key areas where sustainable finance offers opportunity for banks:?

• Agricultural: an opportunity to stay at the forefront of innovation in tech and practices that will prove crucial to reducing emissions and improving food security.?

• Adaptation: helps reduce the risk of default and losses related to climate risk. And helps banks meet their sustainability targets too.?

• Infrastructure: can provide diversified, stable cash flows and diversified revenue streams over time.?

• Green retail housing: green buildings sell faster on average, and at a higher premium. It’s a win for banks, consumers and planet.?

Read our report on sustainable finance?

Driving sustainable growth takes a change of mindset?

We all want to see growth. But growth at any cost? On our Pull up a Chair podcast, we talk to business leaders and visionaries about how organisations can drive sustainable growth.?

In our last episode of 2024, our Chair Bina Mehta caught up with Lucy Parker, a partner and strategic advisor at Brunswick Group and co-author of ‘Everybody’s Business: the unlikely story of how big business can fix the world.’?

We discussed what it means to be an activist leader and the mindset required to tackle the most complex challenges, while driving growth that benefits people, planet, and profits.?Here’s just a taste of what we learnt:?

• If you want to understand what sustainable growth means, turn it on its head. We know if something is unsustainable.?

• The world can no longer pick up the sustainability tab for businesses. It’s not someone else’s job to handle your packaging waste or emissions. And if you don’t come to grips with it, it’ll be pushed by regulation.?

• The activist leader has the mindset to walk towards the issue, to step into the necessary change rather than have it forced on them.?

• As a business leader, you’re in a great place to drive sustainability and social value. You know about implementation. You have the power to innovate, mobilise people, and work with governments.?
• This isn’t a question of how you run a business while people are asking you to be better to society. It’s a question of how your run your business for the long-term.?

Listen to the podcast with Lucy Parker?

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With the New Year nearly upon us, we’d like to leave you with a traditional cry of “lang may yer lum reek” (long may your chimney smoke)* But given the importance of sustainability, it doesn’t feel hugely appropriate. [Perhaps, we’re being too woke.] Instead, we’ll leave you with a simple “Happy New Year”. We’ll be back in 2025, with more insights. See you then.?

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*Before you write in, we know it’s a greeting rather than a farewell.?