Global climate action accelerating, presenting commercial opportunities and risks - Boston Consulting

18th January 2022 By: Schalk Burger - Creamer Media Senior Contributing Editor

Many company leaders underestimate the pace and extent of the change ahead and, as such, climate change early-movers can attract more talent, play in higher-growth segments and save cash and carbon, as well as reduce risk exposure, access cheaper financing and achieve higher shareholder value, states the 'Winning the Race to Net Zero: The CEO Guide to Climate Advantage' report published by global body the World Economic Forum (WEF) and business strategy consultancy the Boston Consulting Group (BCG).

Many business leaders act too conservatively and run the risk of stranded assets and obsolete business models as a result, the report authors say.

In 2019, only 29 countries, representing 10% of global emissions, had made net-zero pledges, while 92 countries, representing 78% of global emissions, have done so in 2021.

Similarly, on the corporate side, commitments from companies are growing exponentially, with more than 2 000 companies worldwide setting targets validated by The Science-based Targets initiative, up from only 116 in 2015, which is growth of 65% a year.

Early-mover companies are changing the game for their sectors and beyond while securing sources of business advantage, the report posits.

“Change is happening much faster than most people and companies realise. For example, forecasts for solar photovoltaic capacity in 2030 increased by a factor of 36 between 2002 and 2020, while projected unit costs dropped by a factor of three,” said BCG climate and sustainability MD and partner Patrick Herhold.

“Companies that underestimate the pace and magnitude of changes like these are at risk of grossly misjudging the impact that climate transformation can have on business models, products, and company value. The transition may come with risks, but also presents an unprecedented opportunity.”

Half of job seekers prioritise sustainability in their choice of employer and companies taking climate action can achieve up to 25% higher growth for green alternatives to traditional products. Further, almost all companies can realise at least a third of required emission reduction at no net cost to their business. Some even manage to almost fully decarbonise at no net cost, or an average of 50% emissions reduction at no net cost across key sectors, the report highlights.

Additionally, companies taking climate action reduce their risk exposure, and can achieve an earnings before interest and taxes margin improvement of between 2% and 12% from reduced carbon tax liability. Companies taking climate action can also access capital at an average 100 basis points lower cost of capital for companies that are sustainability leaders.

Further, companies with climate-positive initiatives are also averaging 3% higher total shareholder return for sustainability leaders than companies not taking climate actions.

Meanwhile, the report found that the greatest progress in recent years has often come not from collective action, but from competitive action triggered by a single company boldly moving ahead of its sector.

“Early-movers are not only creating more value, they are changing the game, as they compel others to follow. These early movers raise the bar for their industries, reshape their market context, disrupt their own business models, show that emission reduction can work economically and provide customers with a sustainable choice.”

“Leadership by the private sector is critical to accelerate climate action in tandem with bold steps taken by government leaders. We are seeing new momentum. [Conference of the Parties] COP 26 pushed climate issues further in the global spotlight with significant commitments made,” said WEF head of the Climate Action Platform Antonia Gawel.

“At the Davos Agenda 2022, we hope business leaders continue to increase their commitments, recognise emerging climate risks as core to their business and importantly, translate commitments into near-term business transformation and investments.”

The Davos Agenda 2022 is the focal point for leaders to share their outlook, insights and plans relating to the most urgent global issues.

“This [Winning the Race to Net Zero: The CEO Guide to Climate Advantage] report outlines how leaders can grow green and accelerate the action we need to protect the planet,” she says.