Net-Zero is a term that has become popular in both the public and private sectors thanks to the massive advocacy performed by the environmental movement led by the United Nations and other global foundations.
More recently, following the COP15 and COP26 Climate Summits that respectively took place in Paris, France in 2015 and in Glasgow, UK in 2021, the term has become synonymous with the green industrial transformation. Net-zero refers to the decarbonization of our economies to the level in which the greenhouse gases going into the atmosphere are harmonized by their complete removal.
When we reach Net-Zero, which for now is tentatively targeted by 2050 (according to the COP26 pledges by over 100 countries), global warming should stop. This should result in less intense and frequent disaster events and more predictable weather patterns, thus protecting billions of dollars of potential damage and loss. For these decarbonizations to be effective, they have to be permanent and be linked to long-term sustainability and green-growth policies and investments that prevent new unavoidable carbon emissions.
As of today, we are still far from the decarbonization target that would keep the temperature increase below 1.5 degrees Celsius by the end of the century. However, we currently still have a CO2 budget, ie, the amount of carbon that we can emit while still having a chance to slow global warming within 1.5 degrees centigrade. As of today, we have about 400 billion tons of CO2 budget and if business as usual remains, we will spend this budget within 9 years. Just as a reference, the United States emits 7.2 billion tons of GHG per year. So, let’s look at the business opportunity at hand and get to work to ensure that decarbonization accelerates across sectors.
The business opportunity
Decarbonizing our economies will be costly, but as in all investment, and disruptive changes capital and risk taking must be at the core of this transformation. Under the 1,5 C Net-Zero plans almost $30 trillion dollars will have to be invested by 2050. This corresponds to roughly 4 percent of annual GDP (in 2021 money).
According to the management consultant McKinsey, the growing demand for net-zero services and technologies is accelerating and could generate more than $12 trillion of annual sales by 2030 with key leading sectors including transport ($2.3 trillion to $2.7 trillion per year), power ($1.0 trillion to $1.5 trillion), and hydrogen ($650 billion to $850 billion). Such a transformation of the global economy will create significant growth potential for climate technologies and solutions as already evidenced by the massive growth of green startups and green unicorns (companies valued at over 1 billion dollars).
The price tag to reach Net-Zero is clearly significant, however, the cost of unmanaged and unpredictable climate change (based on business as usual) would be much higher as climate events are projected to affect about 20 percent of global GDP by 2040. In the US alone according to the While House, natural hazards could cost the U.S. federal budget about $2 trillion per year, a 7.1% loss in annual revenue by the end of the century.
The market status and the opportunities ahead
While many decarbonizing technologies in the energy, mobility and manufacturing sectors require more investment to make the underpinning technologies scalable, there are positive market signals indicating that large corporations believe that green hydrogen, green steel, green aluminum, and green cement (just to name a few) will become economically viable very soon.
In 2021 alone green tech companies attracted investment of over $1 trillion dollar, while the market capitalization of oil and gas companies declined by roughly $690 billion. In 2002, the Davos First Mover Coalition (FMC) expanded its green transformation partnership to over 55 leading corporations that have started buying billions of dollars of decarbonizing technologies to scale up green tech “early adoption.”
Another interesting trend of sustainability start-ups is that these companies are embracing the “Silicon Valley approach,” taking huge risks and raising massive capital to challenge the market status quo. Among these, Green unicorns are creating value for shareholders more rapidly than previously expected, reaching the billion-dollar valuation significantly faster than early-stage companies in conventional sectors. On average, green tech startups have taken four years to join the unicorn club, as opposed to seven years for startups in other sectors.
As business leaders, we must think that companies producing low-emissions goods and services will have a much bigger market share, while higher emission products and services will lose market capitalization and competitiveness. Those companies that invest in decarbonization now will gain competitive advantages and stronger brand equity for being able to offer low climate impact products and services.
We expect the Net-Zero movement to catalyze trillions of dollars invested in renewable energy, clean fuels, and carbon capture and storage in the short term. The shift to low carbon technology will accelerate further as decarbonization becomes the fastest growing business and investment opportunity to enable the Net-Zero targets. Finally, as climate risk is being prioritized by all market participants and politicians, this is a great time to refocus your business or start investing to decarbonize the global economy.
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