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How the net-zero transition is catalyzing innovation
Moving to a decarbonized future could generate up to $2 trillion in investments annually, inspiring new supplier relationships and low-carbon technologies across a wide range of industries.
2020 will be remembered as the year that the push for net-zero greenhouse gas emissions moved beyond early movers and into the mainstream. As of March 2021, more than 2,000 multinational corporations had declared plans to reach that status by 2050, representing one-fifth of the world’s largest companies and a collective run rate of $14 trillion in annual sales. And it looks like in 2021, we are seeing commitments being announced at an even faster and more ambitious pace.
But forward-thinking business leaders are looking beyond the standard pledges to save energy, promote water conservation, or improve operational efficiencies. They are viewing the transition to a net-zero economy as an opportunity to spark product innovation, create competitive advantage, and generate new value and revenue streams—and their work is inspiring progress across sectors.
As businesses deploy technologies ranging from electric delivery vehicles to renewable energy to carbon removal solutions and low-carbon industrial equipment, the companies selling them stand to gain substantially. Recent estimates by the Energy Transitions Commission, a coalition that includes heavy hitters representing the power and financial services sectors (among others), suggest that the technology and process investments required to decarbonize will range from $1 trillion to $2 trillion annually. According to a recent analysis by Boston Consulting Group and the World Economic Forum, that represents a big opportunity for companies that move quickly, especially within the eight supply chains responsible for generating more than half of global greenhouse gas emissions: food and agriculture, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services, and logistics.
While these transformations won’t happen overnight, they do need to accelerate, and this realization is inspiring some dramatic strategic shifts across industries.
“All the investments needed to address climate change are someone’s revenue,” says Cornelius Pieper, managing director and partner for Boston Consulting Group, and co-lead of the firm’s Center for Climate and Sustainability, referring to the broad range of opportunities that exist for companies that choose to be part of the solution. “We will need to invest in low-carbon technologies. We will need to invest in recycling and circularity. We will need to invest, to some extent, in mitigation and protection. And that’s where the potential and opportunity lie.”
That opportunity is inspiring corporations to reimagine their supply chain relationships. A growing number of Fortune 500 companies are setting reduction targets for the Scope 3 greenhouse gas emissions generated by their existing suppliers, recognizing that they can’t achieve their net-zero goals without collaboration. At the same time, more companies are forging alliances with business partners that can fast-track next-generation climate innovations, notes Pieper. These breakthroughs include a vast array of cutting-edge solutions, such as data services that provide much-needed insights into land use or emissions trends, synthetic biology that improves soil health or enables alternative proteins, and new materials to improve electric vehicle batteries or replace petrochemicals. Many innovations are technology-driven, but also new business models can contribute to addressing climate change, as the chart below shows.
And many times, this is best done jointly. Unilever, for example, is building a network of partners to wean itself off of fossil fuel–derived ingredients in the formulations of its cleaning and laundry products and to deliver on its net-zero ambition by 2039. And one of the world’s leading multinational luxury vehicle manufacturers made moves in May to take a “single-digit million” equity stake in H2 Green Steel, which is pioneering a coal-free steel production process that eliminates carbon dioxide emissions. The material could be used in the company’s vehicles by 2025, and the impact will be appreciable: steel accounts for about 30% of its carbon footprint for production.
Setting performance expectations for low-carbon technologies and measuring their impact on emissions reductions will require corporations to work closely with every member of their value chain—from customers to suppliers to their suppliers’ suppliers, says Pieper. A critical enabler will be digital technologies, such as blockchain ledgers that can track and validate claims along a supply chain and provide credible evidence that a climate solution is having its intended effect.
These transitions will require cultural shifts across virtually every industry, but as billions of dollars flow into climate technologies, large corporations are an increasingly vital driver of the net-zero transition. “Established corporations play a very important role in helping to speed up the deployment and scaling of innovative breakthrough technologies that really help us reduce carbon,” says Pieper. “But every company must start with one fundamental question: ‘What is our role in a low-carbon world?’”