The race to net-zero is underway with 65% of the world’s economy committed to carbon neutrality - but the latest research shows that in order to prevent catastrophic climate change, a fundamental transformation of society and our economy is needed along with universal participation. Scientists believe it’s the greatest challenge humanity has ever faced and the World Economic Forum has identified ‘climate action failure’ as the number one risk likely to have the most devastating impact over the next decade. Some business leaders have called for a ’new form of environmental capitalism’ where all companies commit to net-zero and rely exclusively on renewable energy sources. But what will this cost and who will pay?
“Achieving net-zero emissions by 2050 would entail a fundamental transformation of the global economy,” McKinsey says in their latest report, titled The Net-Zero Transition: What it Would Cost, What it Could Bring?
Here are 6 things you should know about the cost of sustainability for your business survival:
1. Global Transformation: research shows that achieving net-zero will require a significant, coordinated, and global effort, with total spending by governments, businesses, and individuals on energy and land-use systems rising by some $3.5 trillion every year. This rise is equivalent to 50% of global profits, 25% of tax revenue, and 7% of household expenditure – a 60% increase on current levels of investment. McKinsey’s report indicates a further $1 trillion would also need to be reallocated from high to low carbon assets. This fundamental transformation of the global economy will affect all industries and will require all businesses to commit to and deliver climate action. Most of the cost will occur earlier in the transition and will impact the highest polluting industries most, such as energy, transport, agriculture, fashion, and food. Businesses in these industries will need to shift to low-carbon, climate-positive models.
2. Job Creation: In the short term, it is estimated that moving away from fossil fuels will cost 185 million jobs, but according to the UN Environment Programme (UNEP), the green economy will see the creation of over 380 million jobs. The McKinsey report indicates that we will see 200 million new roles by 2050, including eight million in renewable power, hydrogen, and biofuels. It is predicted that the scale of workforce reallocation may be smaller than other trends such as automation but displaced workers will need support, training and upskilling during the transition to a net-zero, green economy.
3. Investment Benefits: Sustainability has been identified as the ‘growth opportunity of the century' and is overtaking traditional investment, converging ESG and non-ESG products. 77% of investors plan to stop purchasing non-ESG products in 2022 and across categories, products marketed as sustainable are growing 5-6 times faster than average. According to the FT, there are now over $2.7 trillion in assets managed in more than 2,900 ESG funds. In 2020 alone, clean technologies created $1 trillion of value for investors, while the market capitalisation of gas and oil companies declined by about $680 billion. These figures parallel previous tech transitions e.g. the rise of the internet economy in the 90s and the smartphone revolution over a decade ago. Investment in net-zero technologies, products, and services is expected to generate even greater returns in the future. Growing evidence shows that investment strategies focussing on companies with strong sustainability performance, e.g. those with lower emissions, diverse executive teams, and well-paid workers will do better than those who pay little attention to negative externalities. By investing in renewables, for example, companies can reduce emissions whilst improving their bottom line. 300 companies worldwide have made sustainable commitments via the RE 100 initiative. By committing to net-zero and tapping into the sustainability market predicted to be worth $12 trillion per year by 2030, investors can generate significant returns whilst accelerating the decarbonisation of the global economy.
4. Consumer Impact: Consumers are already experiencing rising energy bills, job losses in high-emissions industries, and changes in diet. McKinsey’s report expects increasing outgoings to end our dependence on fossil fuels to heat homes and travel in the short term. The research shows that the cost to consumers and investors will be front-loaded. Transitioning the energy sector to zero carbon and building up electricity grids to cope with a potential doubling of demand by 2050 will push bills up by 25% between 2020 and 2040. Despite this, the latest research shows that consumers have moved from intent to action. According to the Harvard Business Review and NYU Stern’s Center for Sustainable Business, in the US, eco-friendly marketed products generated $114bn (up 29% over 5 years) and grew faster in 90% of CPG categories. Despite the current cost of living crisis, the European Commission has reported that two-thirds of consumers would be willing to buy more sustainable products even if they were more expensive. Some studies have even suggested that up to 25% of those polled would be willing to pay over 10% more for greener products. Broader cross-national surveys show that between 53–60% of consumers in most developed countries (Japan being the clear exception) are willing to bear higher costs for products that are seen as more environmentally friendly. According to a 2022 report by Sensormatic over 30% of shoppers across Europe think more responsibly than pre-pandemic when making purchases with Spanish consumers being the most sustainable. 40% of Spanish respondents claim to make greener choices compared to the start of the pandemic, with 37% of UK consumers offering similar responses. Prior to the pandemic, the research says, just 10% considered sustainability before making purchases.
5. Cost of Delay: Delaying the transition to a low-carbon economy could cost trillions, experts warn and business leaders urge that transition needs to start now or the economic, social and environmental costs will likely surge. A poorly managed transition could lead to shortages and price hikes prompting a consumer backlash that risks further slowing the journey to net-zero. There is no doubt that universal cooperation between countries and companies is vital to prevent temperatures from rising to 1.5°C above pre-industrial levels. At Davos 2022, World Economic Forum President Børge Brende warned about the consequences of focussing solely on the cost of transition “The cost of inaction far exceeds the cost of action,” he says.
Opportunities of a Net-Zero Economy: Businesses adopting sustainable practices and taking climate action towards a net-zero economy can tap into a global sustainability market with an annual value of $12tr by 2030 and join green businesses using climate-focused innovation and disruption to achieve returns of 70-80%. By developing a sustainable advantage, companies respond to customer demand that’s driving eco-products to grow 7x faster than traditional products and benefit from 30% savings by switching to sustainable sourcing, technology, and operations. Businesses can also increase the value of existing products by tapping into the 40% price premium achieved with a sustainability focus. A sustainable advantage can also be enhanced by developing internal skills to address demand from the 380m+ jobs created in the sustainability market by 2030. There is also an opportunity to address your customers’ targets for Scope 3 emissions along their supply chain, and access a suite of sustainability benefits including improved reputation (60%), improved profitability (53%), lower costs (30%), and increased production (30%) and align with pioneering businesses adopting UN Global Goals to gain a 5-15 year advantage.
Act Now and Develop Your Sustainable Advantage
European Commission President Ursula von der Leyen says people must not expect the transition to be smooth. “There will never be a linear shift from a fossil fuel-based system to a clean energy system – we must be upfront about that. But the direction is clear and so is our commitment.” The World Economic Forum’s most recent report on climate change says the race to net-zero will fundamentally change the way many companies do business forever. But businesses are unprepared for the challenge because the data they are using to predict the future is outdated, it adds. Business leaders need to see the transition to a green economy as an opportunity, the Forum report says. “Climate leaders can attract and retain better talent, realize higher growth, save costs, avoid regulatory risk, access cheaper capital, and create new sources of value for customers. Done well, this will translate to higher shareholder returns and a sustainable source of competitive advantage.”
With over half of GDP, $44 trillion likely to be threatened by nature loss, what’s clear is that the cost of inaction far outweighs the cost of transition to a clean, green, sustainable economy. The question is, will your business be part of it?
Futuretivity https://www.futuretivity.com/ delivers climate positivity with vibrant, socially impactful commercial power. We recognise that the how-to of sustainability can be overwhelming, so we empower businesses with actionable roadmaps, skills for the future, and meaningful connections to succeed. Being a conscious business needn’t cost the earth nor cost your business.
For more inspiration and insights on sustainability for business go to futuretivity.com/resources If you are a company that needs help with sustainability in your business book a call with Futuretivity now and get sustainability delivered.