BCG-WEF Project: The Net-Zero Challenge

Related Expertise: Climate Change and Sustainability

BCG-WEF Project: The Net-Zero Challenge

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. This report shows how.

A CEO Guide to Net Zero

Even as global climate action accelerates, many companies remain ill prepared. They collectively underestimate the change ahead and act too conservatively, risking stranded assets and obsolete business models as a result.

Leading companies across 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; they are often changing the game in their industries by showing the way to a profitable, sustainable future.

Consider three facts about early movers on climate change:

1. 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.)

2. Leaders 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 more costly decarbonization levers. (See Exhibit 2.) Almost all companies can realize at least a third of emissions reductions at net-zero cost to their business. Companies in the food, consumer and automotive sectors can reduce scope 1 and 2 emissions by approximately 70% at net-zero cost.

3. 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.) The goalposts are shifting quickly. A single company with the courage to set ambitious targets can move its entire industry.

The Path to Net Zero

CEOs across all sectors need to 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. (See Exhibit 4.)

Explore the Key Building Blocks

The starting point for any climate strategy is to understand the problem. Companies need to quantify their emissions, both in their own operations (scope 1 and 2) and throughout their value chain (scope 3). Limited data and visibility often make this a big challenge, but successful companies find ways to establish transparency about emissions and identify product-specific carbon footprints—steps that enable them to better commercialize emissions reductions.

Leaders understand that both climate change and climate action affect companies’ business models and that proactively adapting product and business portfolios can create new growth opportunities. They analyze the financial exposure of their current business portfolio in a net-zero scenario, and they define their purpose and business model adaptations on the road to net zero. They also establish a clear position on the role of offsets and removals, and they set ambitious emissions reduction targets, recognizing that ambitions are dynamic and will evolve as circumstances change and technologies advance.

Companies need to climate-proof their operations. This means reducing emissions in their production and supply chain, and building resilience to the increasing physical risks arising from climate change.

The most effective emissions-reduction programs are not run much differently from a cost savings program. The best companies manage top-down efforts, identifying the lowest-cost pathways by site or facility and steering progress with well-thought-out targets, incentives, and implementation tracking. They also rethink the design of their products and try to use fewer, alternative, or secondary materials. They hard-wire consideration of CO2 emissions into their purchasing decisions and engage intensively with suppliers to reduce emissions in their own processes and supply chains.

Companies need to climate-proof their business portfolios, too. Successful companies try to anticipate how their portfolios will perform in a net-zero world. They seek to limit exposure to declining businesses and invest instead in those that can contribute to longer-term growth. And recognizing that low-carbon solutions will see enormous growth, they look for new markets where they can leverage current advantages to create new offerings and business models.

Winning the race to net zero requires transformation of the entire organization, starting with a step-change in transparency, mobilization, and capabilities. Internally, transparency can help mobilize employees. Externally, more and more companies are communicating boldly about their progress on climate goals, as doing so increasingly becomes table stakes.

Just as companies steer profitability and sales, they need to establish a carbon governance model that sets the right incentives and makes future-proof investments easier, including a new steering model, processes, KPIs, incentives, and systems.

The transformation to net zero will almost certainly require an organization to develop or acquire new skills to support the pivot to new businesses or technologies. It will also require substantial investment—in decarbonizing operations, building new businesses, and strengthening resilience. Companies can leverage green financing and engage with partners on innovative financing schemes, such as sustainability-linked bonds.

Instead of trying to prolong the life of an unsustainable business or process, companies should seek support for developing future sustainable endeavors. Sustainability leaders will draw competitive advantage from being ahead of the curve when regulations tighten, while their rivals struggle to catch up. Companies can also engage their ecosystems of suppliers and partners to further everyone’s ability to deliver sustainable outcomes more quickly.

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.

Related Project Content

The latest climate science is clear, and the imperative for action is indisputable. BCG and the World Economic Forum are calling on businesses and governments to accelerate their implementation of ambitious, fact-based, unequivocal climate action.

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The Sustainable Advantage: Insights on creating competitive advantage through sustainability.

BCG-WEF Project: The Net-Zero Challenge