BCG-WEF Project: The Net-Zero Challenge

Related Expertise: Climate Change and Sustainability, Energy, Sustainability Strategy and Transformation

BCG-WEF Project: CEO Climate Leaders

The race to net-zero emissions will forever change the way many companies do business. The immediacy, pace, and extent of change are still widely underestimated. Early movers can seize significant advantage.



The State of Climate Action

As we approach COP28, humanity is still far from solving its biggest challenge. Following years of insufficient action, the COP21 ambition agreed upon in Paris may be slipping out of reach—less than ten years after its formulation. We must strengthen our resolve and immediately shift from incremental to exponential actions.

To retain any chance of limiting global warming below 1.5°C, global emissions must decrease by around 7% annually until 2030—but emissions are still increasing today by 1.5% per year. (See the exhibit.)

The current pace of international climate action is insufficient across the board:

  • Only 35% of emissions are covered by national net zero commitments by 2050, and only 7% by countries that complement bold targets with ambitious policies. Stronger commitments and actions are most critically needed from the ten largest emitters, which account for half of the gap to 1.5°C.
  • Less than 20% of the world’s top 1,000 companies have set 1.5°C science-based targets, and less than 10% also have comprehensive public transition plans. Almost 40% have no net zero commitment at all.
  • Technologies that are economically attractive now or that will be in the near future can achieve only around half of the emissions reductions we need to reach 1.5°C. The rest, including “deep decarbonization” technologies—such as hydrogen, carbon capture, utilization, and storage, and direct air capture—are still in early stages of development and are scaling too slowly.
  • More than half of climate funding needs remain unmet, with especially critical gaps in early technologies and infrastructure and in developing economies, where the gap is twice as large as in developed ones.

It seems like a stale warning, but we are running out of time, and even higher thresholds like “well under 2°C” are increasingly at risk. Adaptation will not be sufficient to deal with the future we are currently steering our planet toward. We must drastically step up our mitigation efforts. Every tenth of a degree counts.

We are getting dangerously close to setting off cascading tipping points that threaten the future of our planet. In this report, we offer an honest assessment of where we fall short on global climate action—and what is required to succeed.

Winning in Green Markets: Scaling Products for a Net-Zero World

To realize the ambitions set out in the Paris accord, a massive technology shift is needed across all economic sectors. Non-fossil solutions already exist to mitigate most global emissions. 1 1 Net Zero Challenge: The Supply Chain Opportunity. Notes: 1 Net Zero Challenge: The Supply Chain Opportunity. For many green materials, products, and processes, however, costs are higher than for their gray counterparts. Fortunately, this cost challenge is far from insurmountable, and early movers show us what it takes to win in fast-growing green markets.

In our new report, coauthored with the WEF Alliance of CEO Climate Leaders, we explore how other companies can take a similar path by identifying, creating, and scaling green businesses. Among the insights:

  • The cost issue is particularly challenging in industrial sectors. Consider green technologies to decarbonize aviation. Air transport with 100% hydrotreated ester and fatty acid (HEFA) biofuels is expected to increase cost per ton-kilometer by roughly 8%, while reducing emissions by 50% to 90%. And a fully net-zero fuel such as power-to-kerosene, which is in the pre-industrial phase and not yet scaled, would increase fares by a factor of almost 2.
  • The cost disadvantage is not set in stone. As green technologies scale, their cost disadvantage is likely to decline. In the US, for example, solar has reached cost parity with both coal and natural gas. Meanwhile, the total cost of ownership of both commercial battery and hydrogen electric vehicles is expected to drop below that of internal combustion engine vehicles within the first half of this century. And in Europe, green steel may reach cost parity with gray steel as early as next decade.
  • There is an untapped market for green. A June 2022 BCG sustainability consumer survey found that while less than 10% of consumers purchase on sustainability just to “save the planet,” the number of consumers in any given category who would opt to make sustainable choices increases roughly twofold to fourfold (to 20% to 43% of consumers) when sustainability is linked to other benefits such as health, safety, and quality. And those percentages increase another twofold to fourfold (to roughly 80%) when barriers such as convenience, information, and cost are addressed. Companies that figure how to deliver additional benefits and reduce points of friction can gain access to a major untapped consumer market.
  • Commitments to decarbonize will create further momentum in green markets. As of November 2022, 1,957 companies had set certified, science-based emissions reductions targets, and a further 2,103 had committed to set them—a significant increase in many sectors. As companies translate these commitments into action, “green premium” markets are beginning to emerge. Players in different sectors have begun introducing low-carbon materials and services to the market—and are capturing price premiums for them.
  • Scarcity is likely to be an issue for some critical green inputs. There is a notable gap between the commitment of downstream players to decarbonize their upstream value chains and the commitment of upstream players to provide the low-carbon materials needed to meet these targets. This divergence in commitment level creates a major risk of scarcity for some green materials.

To create a compelling green offering and to secure the resources necessary to deliver it, both downstream and upstream companies need to rethink their go-to-market approach and take six critical actions:

A CEO Guide to Net Zero

Even as global climate action accelerates, many companies remain ill prepared. They underestimate the magnitude of the change ahead, and they act too conservatively, putting themselves at risk of ending up with stranded assets and obsolete business models.

Leading companies in an array of sectors—from automotive to food and from shipping to power—are starting to prove that the net-zero transition is a business opportunity that can bring sustainable competitive advantage. These leaders are not just creating more value; in many cases, they are changing the game in their industries by showing the way to a profitable, sustainable future.

Consider three facts about early movers on climate change:

  • They gain competitive advantage. Climate leaders can attract and retain better talent, realize higher growth, save costs, avoid regulatory risk, access cheaper capital, and achieve higher shareholder returns. (See Exhibit 1.)
  • They can achieve sizable emissions reductions at net-zero cost. By becoming more energy efficient and switching to lower-cost renewable power, for example, leaders can realize significant cost savings, which they can then use to fund costlier decarbonization levers. (See Exhibit 2.) Almost all companies can realize at least one-third of the emissions reductions they need to achieve at net-zero cost to their business. Companies in the food, consumer, and automotive sectors can reduce their Scope 1 and Scope 2 emissions by approximately 70% at net-zero cost.
  • They raise the bar for their industry. Sustainability is now a competitive consideration. At the very least, companies do not want to be seen as lagging—so if one company moves, others feel pressure to follow. (See Exhibit 3.) As a result, the goalposts are shifting quickly. A single company with the courage to set ambitious targets can move its entire industry.

CEOs across all sectors must navigate an unprecedented global transformation. On the path to net zero, they must successfully transform their strategy, operations, business portfolio, and organization. There is no blueprint for what lies ahead, but we can identify challenges to look out for and moves to consider. To this end, BCG and the World Economic Forum have collaborated to produce the CEO Guide to Climate Advantage.

We encourage business leaders to read the full guide, but here are the four key building blocks for a net-zero transformation:

Explore the Key Building Blocks

Net-Zero Strategy

Net-Zero Operations

Net-Zero Business Portfolio

Net-Zero Organization

It’s time to commit, engage, and act. The world is embarking on the biggest transformation in history. This is a time like no other for bold, ambitious leadership. It’s time to move.

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BCG-WEF Project: CEO Climate Leaders