How business can bridge the gap and achieve net zero

Boardrooms are being asked not just for targets but also for climate transition plans. Already more than US$50tn assets under management (AUM)—close to half of total AUM—is currently held by investors that have pledged to drive decarbonisation. Corporate boards and banks are being asked to present not just targets but their transition plans to reach net zero. Asset owners and managers are increasingly awake to the threat of significant value erosion and multiple compression on carbon-intensive assets, and to the value creation upside for companies pioneering products and services aligned with a net-zero future. 

To address these demands, business leaders need a credible approach—and even those with existing net-zero commitments need a plan to tackle the toughest decarbonisation challenges. Many, for example, are notably vague when addressing how the company will transform their value chain emissions, such as downstream emissions from products, services and investments. Of the 160 companies in the Climate Action 100 initiative (chosen for their significant greenhouse gas [GHG] emissions), 43% now have net-zero pledges in some form. But just 10% of these companies’ targets directly address their most material Scope 3 (value chain) emissions—which means most will need to go further.

This requires a wholesale transformation, one that touches every part of a company’s business and operating model. Building on a net-zero ambition, companies have to ensure accountability at the top, realign their corporate growth strategy with net zero, adapt their operating model and supply chain to support the transformation, invest in innovation, provide the necessary financing, and prioritise transparency and engagement. Success will require that the CEO, the CFO, the chief innovation officer, the chief risk officer and other top corporate leaders join the sustainability chief, alongside a substantial investment in the right skills.

Although the magnitude of change required may seem staggering, technology has the potential to upend the status quo and catalyse radical improvement. Net-zero commitments can boost the odds of those breakthroughs taking place, because each commitment represents a new customer in need of solutions to help meet its goals. Consider, for example, the One World Alliance of airlines, which committed to net zero by 2050. Making that pledge meant betting on zero-emission aircraft technologies that don’t yet exist at scale—in this case, commercial passenger aircraft that can be run on sustainable aviation fuels and green hydrogen in the next ten to 15 years.

The technology we need will come from a wide array of organisations, including new and emerging companies. Notably, as we found in a recent study, the rate of early-stage investment into climate tech is growing fast—in fact, five times faster than the rate of venture capital investment more broadly. During the past seven years, the aggregate funding for climate tech companies, the rate of start-up creation and the average size of funding have all increased. Between 2013 and 2019, early-stage venture funding for climate tech companies reached US$16.3bn—an increase of 3,800%. Corporate investors are becoming particularly important actors.  

This embrace of innovation offers a path to progress, and that’s good news as we embark on what will be the decisive decade for climate action. Society will expect business leaders to act: According to the Edelman Trust Barometer 2021, 66% of respondents believe CEOs should take the lead on creating change, instead of acting only when governments impose change. Achieving aggressive net-zero goals will build on this momentum (whereas failure to act will erode it). Leaders will have to pull the future into the present in order to execute a profound and rapid transformation the likes of which the world has never seen, but urgently needs.