The net-zero transition could lead to the largest transformation of the industrial sector since the beginning of the Industrial Revolution. To reach net zero by 2050, about $275 trillion in cumulative spending on low-emissions assets will be required over the next 30 years—or approximately 7.5 percent of global GDP every year for 30 years. 1 Decarbonizing operations and product offerings presents many companies with the most significant opportunity in a generation: a potential $9 trillion to $12 trillion in annual sales by 2030 as capital and customer demand shift toward a low-carbon economy. On the flip side, failure to decarbonize could, on average, risk up to 20 percent in economic profit for companies by 2030, based on factors including stranded assets, increasing cost of capital, and loss of market share. 2 In any case, decarbonization is a difficult transformation for most companies. The costs for scaling climate technologies and building new capabilities can be high. Access to financing can be challenging for businesses entering nascent, untested markets. Timelines for decarbonization can conflict with performance objectives and often stretch beyond the expected tenure of the current company executives. Meanwhile, entire supply chains are still being rewired from fossil fuel–based energy and feedstock to renewable sources, which could lead to major shifts in energy costs and the viability of current assets. In the current moment, leaders are also navigating the added complexity of inflation, disruptions to energy markets, supply shortages, and increased interest rates. To survive—and, ideally, create value—companies will need to think through their decarbonization strategy, keep up with a shifting landscape of market opportunities and policy (from subsidies and regulatory schemes to the organization’s geographical footprint), and make swift decisions. In some markets, start-ups have become early leaders in decarbonization (renewable energy, electric vehicles, and steel, for example). Start-ups often have a higher tolerance for risk-taking and the
ability to operate at faster speeds with agility. But a set of incumbents has emerged as market leaders, too. These incumbents, including many in hard- to-abate sectors (such as chemicals and steel), have leveraged a few of their advantages, including long-term customer relationships and access to capital, talent, industry insights, and supplier networks. These established players, from industrial companies to logistics and consumer goods organizations, have been willing to take bold action and play offense to get ahead of their competitors. How can more incumbents decarbonize and create value? Based on our experience, companies that are a step ahead in their decarbonization transformation tend to take action in three key areas. In this article, we explore the three key areas, a new tool that can help leaders build the business case for net-zero offerings, and reasons to move quickly.
Decarbonize and create value: Three moves for incumbents
In our experience, incumbents that have created value through decarbonization have focused on three key areas of action: — Decarbonize and improve cost competitiveness. Companies that reduce costs and emissions simultaneously can gain market share and finance further decarbonization efforts through the additional cash generated. Leading companies typically go after the first 20 to 40 percent of decarbonization while also reducing costs, leading to an improvement in EBITDA. 3 — Launch net-zero offerings. Companies that are quick to offer zero-carbon offerings can leverage inherent supply–demand gaps in nascent markets and create value through value-based pricing strategies and price premiums.
— Enter new value pools. Companies that build new businesses along the current value
1 “The economic transformation: What would change in the net-zero transition,” McKinsey, January 25, 2022. 2 “Playing offense to create value in the net-zero transition,” McKinsey Quarterly , April 13, 2022. 3 Based on net present value.
Accelerating the journey to net zero
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