BCG-WEF Project: The Net-Zero Challenge

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.

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Bold Measures to Close the Climate Action Gap: A Call for Systemic Change by Governments and Corporations

Humanity’s biggest challenge remains far from being solved. The ambition agreed upon in Paris in 2015 may be slipping out of reach—less than ten years after its formulation. Decision makers must strengthen their resolve and immediately shift from incremental to systemic 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.)

Despite recent progress in many dimensions, climate action remains largely ineffective:

  • Only 35% of emissions are covered by national net-zero commitments by 2050, and only 7% are covered by countries that complement bold targets with ambitious policies.
  • Fewer than 20% of the world’s top 1,000 companies have set 1.5°C science-based targets, and fewer than 10% also have comprehensive public transition plans. Almost 40% have no net-zero commitment at all.
  • Technologies that are economically attractive now or will be in the near future can achieve only around half of the emissions reductions needed to reach 1.5°C.
  • More than half of climate funding needs remain unmet, with especially critical gaps in early technologies and infrastructure and in lower-/middle-income economies.

Adaptation will not be sufficient to deal with the future we are currently steering our planet toward. We must drastically step up mitigation, and can no longer rely on incremental initiatives. We need bold systemic change, with fast and outsized impact. Stronger government ambition and policies are especially critical to create the needed economic tailwinds and business cases to decarbonize. Governments should prioritize five actions:

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Close the 600+ gigaton global ambition gap

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Recognize and raise the price of carbon

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Double financing and incentives for outsized-impact solutions

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Remove transition obstacles to accelerate action at least threefold

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Prepare for more drastic measures in an ever-warming world

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Close the 600+ gigaton global ambition gap

Current national targets would overshoot the 1.5°C path by more than 600 gigatons by 2050. There is a global gap to 1.5°C in both national ambition and action: only 35% of emissions are covered by a national net-zero commitment by 2050, and only 7% are covered by countries that complement bold targets with robust policies.

Governments must urgently close these two gaps by moving up net-zero targets to 2050 or earlier, increasing near-term targets, and raising financial and technical support from higher-income to lower-income nations.

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Recognize and raise the price of carbon

Despite continuous progress, the external costs of emissions are still not adequately integrated into day-to-day decisions. Integration is hindered by a lack of transparency and by insufficient carbon pricing schemes: only two-thirds of the world’s 1,000 largest companies publicly disclose emissions to CDP, and 3% of global emissions are subject to a carbon price aligned with the Paris goals.

All countries should improve end-to-end visibility on emissions, harmonize and simplify reporting standards, and put a meaningful price on carbon. They should complement these initiatives with border mechanisms to avoid carbon leakage and encourage trade partners to set up more ambitious carbon pricing of their own.

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Double financing and incentives for outsized-impact solutions

Historical incentives have been critical to make key technologies competitive, such as solar and wind power. While these still need more support to scale, the same story now needs to happen—and faster—for more than a dozen early-stage technologies, such as hydrogen, biofuels, and carbon capture, needed to achieve close to half of emissions reductions to reach 1.5°C.

Governments should quickly deploy more ambitious subsidy schemes—like the United States’ ~$400 billion IRA, the EU’s ~$300 billion GDIP, and China’s 2021−2025 five-year plan—and set green targets for the $11 trillion that governments spend on procurement every year globally.

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Remove transition obstacles to accelerate action at least threefold

Ramping up carbon pricing and incentives will not be sufficient if other barriers remain. Long permitting processes, especially, make low-carbon projects planned today unlikely to be completed by 2030. In the United States, four times as much wind and solar PV capacity is awaiting regulatory approval as is operational today.

Governments need to fast-track permitting and remove other key obstacles:

  • Supply Chain Risks: One to three countries control over half of most critical supply chains
  • Skill Gaps: Clean energy jobs need to more than double in ~ten years
  • Social distrust: Based on a sample of ~9,900 adults aged 18+ across the US, India, Brazil, Germany, UK, and Australia, 55% to 85% of people continue to hold false beliefs about climate change

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Prepare for more drastic measures in an ever-warming world

Despite the urgency, chances seem slim that the priorities listed in the previous slide will be implemented globally and at the pace required. If we do not accelerate, the rising costs of inaction may soon require far more drastic measures.

Governments may have to consider hard technology bans and decarbonization mandates, massive-scale adaptation and removal investments, expanded humanitarian response, and more. Even new geoengineering solutions may be forced onto the table.

Notwithstanding the decisive role of governments, private-sector companies have a major responsibility and opportunity to accelerate climate initiatives—not least to strengthen and build the resilience of their businesses and ecosystems for the coming decade. Though many are already acting internally, the sum of their individual actions is inadequate to achieve our broader goals. We see five ways in which corporations can step up global climate action far beyond their immediate sphere of control, with potential for dramatic impact:

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Accelerate supplier decarbonization

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Enable customers to make greener choices

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Drive change in your industry

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Engage in cross-industry partnerships

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Advocate and support bolder policies

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Accelerate supplier decarbonization

Supplier engagement can have an outsized impact on reducing upstream emissions, trigger ripple effects up the supply chain, and allow companies to secure green supplies. According to CDP data, likely much more than 10% of global emissions are in the direct supply chains of the 1,000 largest companies. But while almost 90% of the 500 largest CDP respondents already engage with suppliers, most are still taking the first steps of information collection, education, and awareness.

Corporations can accelerate by committing to offtakes of green products, building own green supply, demanding stronger commitments from suppliers, co-shaping and co-investing with suppliers, and deploying large-scale support programs.

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Enable customers to make greener choices

For many products, sustainable options are still scarce. Despite some nascent markets, the environment remains difficult, with most customers not willing to pay substantial green premiums without receiving additional value.

But there are already attractive ways for companies to market green alternatives. They can introduce value-creating circular models, market low-emission products with an end-price impact under 1%, make green products like EVs appealing, or expand downstream to unlock green demand. Communicating carbon footprints transparently will also be key to build competitive advantage.

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Drive change in your industry

Alliances with large-scale commitments have grown quickly in recent years. Some have reached strong impact, like the Forum’s Alliance of CEO Climate Leaders, which cut emissions by 10% over 2019−2021. The potential is particularly substantial in supply chain “pinch points," where a few dominant players can quickly reshape whole sectors. For instance, four players alone control 70% to 90% of global grain and soy trading.

Alliances should now expand their membership—especially in middle- and lower-income economies—and spur concrete actions beyond commitments. Peers should also build common industry standards on carbon labeling, data exchange, and “green” product definitions.

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Engage in cross-industry partnerships

All companies depend on other sectors to fully decarbonize their value chains. Many industries also share a need for the same technologies—often far from their core business—such as hydrogen, biofuels, or carbon capture. Cooperating across industries is therefore key to maximize scale, share risks, and reduce green premiums.

In particular, aggregating green demand through cross-industry buying groups can have dramatic impact. The First Movers Coalition, for instance, gathers $15 billion of green purchasing commitments from 90+ companies. Joint ventures and cross-sector funds are also key opportunities to pool resources and risks.

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Advocate and support bolder policies

Government policies are critical to accelerate decarbonization. Whether corporates demand or obstruct them can make an enormous difference. But today, according to InfluenceMap, the advocacy of 95% of global companies is either misaligned with the Paris goals or sending mixed signals.

Companies need to push for smarter, bolder policies rather than preserving the status quo, co-shape regulations and pathways with governments, and engage in large-scale public-private partnerships. Global firms should also engage more with lower-income countries, where their advocacy is still scarce.

The narrative may sound stale, but it is nonetheless true: the clock is ticking, and the time to avert disaster is running out. Focusing solely on our own agendas will not result in nearly enough progress. We must also become system players to support and accelerate change across industries and societies. This is not a moment for asking if we can do it—but finding out how we will.

We hope this report can both inspire and serve as a practical guide for decision makers in government offices and management floors alike. The first part offers an honest assessment of where we fall short, while the second part takes a deep dive into the practical actions that matter most in the shift from incremental to systemic impact.

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:

ネットゼロへの移行にあたり重要な4つの基本的要素

ネットゼロ経営戦略

ネットゼロ・オペレーション

ネットゼロ事業ポートフォリオ

ネットゼロ組織

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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