Companies can both de-carbonize and boost long-term growth. But it means pushing beyond abatement curves’ focus on cost and instead empowering people—while making a few big, strategic bets.
Before the COVID-19 pandemic, environmental, social, and governance (ESG) issues had become priority concerns for governments, businesses, investors, and consumers. As the world looks forward to the post-pandemic next normal, these themes are likely to return to the top of executives’ agendas. Among them, the need to eliminate emissions of greenhouse gases may be the most difficult to address.
Many companies have already committed themselves to deep, long-term reductions in greenhouse-gas emissions. Others will be forced to act by customers, investors, and governments. Almost 300 large companies have joined the highest tier of the Science Based Targets initiative, for example—that is, ramping up pressure on suppliers to cut their own emissions or risk losing business. Business leaders are already telling us that some of their biggest customers are warning that future contracts will be contingent on significant emissions reductions.
A growing share of investment capital is also being channeled into the fight against climate change. Between 2012 and 2018, investment in assets with explicit sustainability goals grew by 15 percent a year. By 2018, such investments accounted for 11 percent of professionally managed assets globally. More broadly, investors are increasingly concerned about the potential impact of climate-related risks across their portfolios. In January 2021, BlackRock, the largest asset manager in the world, asked the CEOs of companies in which it holds shares to explain how they plan to achieve net-zero emissions by 2050
For any company with ambitions to remain viable beyond the middle of this century, the race to net- zero emissions is already under way. Yet, the formidable technical and economic barriers they face has left many organizations stuck in the starting blocks, paralyzed by the abatement curve.
This article was originally published on the McKinsey & Company’s website.