Executive
Executive
Perspectives
Perspectives

The time for climate
action is now
April 2021

BCG Executive
Perspectives
OBJECTIVES OF THIS DOCUMENT

Climate change is not a future threat we can delay a response to,but a present crisis that requires bold action. As we continue tomanage COVID-19 as a society, we cannot afford the consequencesof inaction on the environmental crisis. A fundamental shift toprioritize climate and sustainability measures ensures the longerterm viability of the planet and well-being of future generations.

SUCCESS WILL REQUIRE LEADERS AROUND THE
WORLD TO COMMIT TO A GREEN FUTURE
Tackling climate change is of strategic importance across the
public and private sectors. The upcoming COP261 summit will be a
critical inflection point in public sector sustainability
commitments. The private sector can accelerate climate
investments, which are estimated to be even larger than digitaltransformation investments. BCG has been selected as the official
Consultancy Partner at COP26. BCG has also committed $400M
over the next decade to drive climate initiatives while pledging toreach net-zero climate impact by 2030.
1. 26th Conference Of the Parties – United Nations Climate Change Conference

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IT IS CRITICAL TO ACT NOW ON CLIMATEAND SUSTAINABILITY

Environmental Sustainability Topics
Focus
Focusofofedition
editionFuture topics
Climate change adaptationRole of advanced technologies in climate andsustainability
Habitats and biodiversity protection
Circular economy: pollution, waste, and resource
management2

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This edition is
focused on
climate change
mitigation

Climate change mitigation

The planet is in a dire
state

•
•
•
•

Continuing down the current path is not an option
COVID-19’s impact on climate is minor and only temporary
Large share of emissions today can be reduced with existing technologies
Estimated ~$100-150T investment over next 30 years ($3-5T/yr.) is needed
to reach net-zero emissions globally

Climate stakeholders aremaking progress, but
further action needed• Governments: Committing to climate funding; structural changes required• Individuals: Growing awareness of climate impact; opportunity forcompanies to increase market share and attract talent• Investors: Moving capital to ESG-conscious1 funds; chance to define
financial guidelines for sustainability• Corporations: Facing pressures to move aggressively to net-zeroCEOs must act now toreach net-zero• 7 actions CEOs must take on the route to net-zero (e.g., set ambition,
immediately focus on quick wins to fund the journey)• The time for climate action is now – there will be a sustainability scarcity
soon, creating urgency to capture first-mover advantages• Countries expected to increase environmental commitments at COP26

1. Environmental, Social, and Governance3

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The time for climate action is now; topics covered in this issue

+1.1°C

-68%

8M

-25%

11M

Current global
temperature
anomaly vs. preindustrial averages

Decline in animal
population sizes
since 1970
according to
WWF Living
Planet Report

People displaced byflooding per year

Loss in GDP/capita
by 2100 on current
climate trajectory

Metric tons ofplastic flowing
into the ocean
every year

Source: Carbon Brief; WWF; Royal Society; IPCC; Pew Charitable Trusts

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The planet is in a dire stateEmissions trends and country commitments are far from meeting climate
goals for the Paris Agreement
Global annual greenhouse gas emissions(billion tons of CO2-equivalent)

COVID-19
Fall ofthe USSR

70

-2%

60
World
War II

50

-7%

40
30
20

'08-09financialcrisis-6-8%

Unmitigatedtrajectory1-1%

Paris commitments(3.3°C path)2

Secondoil crisis-4%

US Great
Depression

-50%

-13%

neededby 2030 for
1.5°C path

10
0
1925

COVID-19 emissions
reduction may rebound if
no action taken

1950

1975

2000

2025

2050

2.0°C path3 Paris
Agreement
5
1.5°C path4 goals

Note: These figures exclude land use, land-use change, and forestry
1. Assumes GHG emissions rebound and grow from 2020 at the same rate as the current policies scenario in UNEP 2019 Gap report to 2050 (1.1% CAGR). 2. Assumes countries decarbonize further at thesame annual rate required to achieve their INDCs between 2020 and 2030. 3. Assumes 25% reduction by 2030 and net-zero by 2070. 4. Assumes 45% reduction by 2030 and net-zero by 2050. 5. Paris
Agreement goals are to limit global warming to 2.0°C and 1.5°C, while Paris commitments are emission reductions commitments from individual countries
Source: EDGAR 5.0; FAO; PRIMAP-hist v2.1; Global Carbon Project; IPCC; UNEP Emissions Gap Report, WRI; Climate Interactive; BCG analysis

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As of Mar 31, 2021

~53 Gt CO2e of global GHG emissions, 2019
30%

18%

Oil
Gas

Shipping
Other industries
Chemicals

Coal

17%

Rail

Air

17%

6%
Other2

12%

LULUCF 1

Cooking

Other3

Water

Heavy road

CementLight road

Agriculture

Heating

Steel
Power

Industrials

Transport

Agriculture

Buildings

Waste

Fugitive4

Other

1. LULUCF: land use, land-use change, and forestry. 2. Other building emissions, e.g., appliances, lighting, space cooling. 3. Other industries, e.g., aluminum, pulp and paper. 4. Fugitive gases split
between power and industry but exact split not available
Source: CAIT; IEA; World Energy Outlook; GHG Protocol; BCG analysis

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Power, industrials, transport, and agriculture sectors emit >80% of total
greenhouse gases

Existing technologies can reduce ~65% of emissions needed for net-zero goal

~25%

~40%

100%

Opportunity: Estimated ~$100-150T investment neededover next 30 years to reach net-zero globally ($3-5T/yr.)

New business models and changes in policy can
maximize available net-zero technologies toachieve 60-70% of progress towards net-zero…
e.g., mature technologies include renewable energy technologies, efficiency improvements inoperations; early adoption includes carbon capture, utilization, and storage (CCUS) technologies~35%

Remaining gap in technologies toachieve net-zero by 2050
e.g., technologies not yet commercially scalable such as hydrogenelectrolysis from seawater or alternative-fuel/battery-powered aircrafts

Current CO2
emissions1

Maturetechnologies

Technologies inearly adoption

Remaining
net-zero gap2

1. Excludes other GHG emissions (e.g., methane, nitrous oxide). 2. Includes technologies in demonstration and large prototype as well as technologies still in development.
Source: IEA Sep 2020: Global energy sector CO2 emissions reductions by current technology maturity category in the Sustainable Development Scenario relative to the Stated Policies Scenario, 2019-2070,
GFMA; BCG analysis.

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Technology gap in net-zero emissions

Governments

Committing to climate ambitions and allocating funding, but
structural changes are still required

Individuals

Growing awareness of climate impact presents opportunity forcompanies to increase market share and attract talent

Investors

Moving capital to ESG-conscious funds, with chance to define
financial and operational guidelines for sustainability

Corporations

Facing higher green demands and calls for commitments tomove aggressively to net-zero

Despite this progress, the world is not on track to meet Paris Agreement commitments, setting the need for government
commitments during COP26 and for other stakeholder pledges

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Key climate stakeholders | Positive momentum, but concrete action required
to meet global climate goals

~60-65% of global GHG emissions are generated in countries where
authorities have set, or proposed to set, targets to bring carbon emissions
to net-zero by around mid-century

Pres. Biden invited 40 world
leaders to a climate summit on
Earth Day (4/22). The U.S. will
announce a 2030 emissions
target before the summit

The EU aims to be climate
neutral in 2050 and theEuropean Green Deal is theirplan to make the EU's economy
sustainable“We aim to have CO2 emissions
peak before 2030 and achievecarbon neutrality before 2060”
Pres. Xi Jinping at 75th UNGA

1. G20 countries
Source: United Nations; COP25; White House; CAIT from WRI and Eurostat; ECIU; Reuters; Vivid Economics "Greenness of
Stimulus Index" report (Feb 21 2021); BCG analysis

Governments~$1.8T of $14.9T global
pandemic stimulus1 has
been committed toaction against impactsof pollution
Critical to use stimulus,
along with policy, tocreate permanent
structural changes inprivate / public sectors
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Committing to climate ambitions and allocating funding, but
structural changes are still required

Individuals>70%of people are more aware now than before COVID-19 that theclimate is threatened by human activity and that in turn humans
can be threatened by the degradation of the environment1

Sustainablepurchases~20%of consumers say they would be willing to pay a 10%+ premium forsustainable goods

Employeedecisions~40%of Millennials state that sustainability was a consideration in theirjob choice

Companies can activate consumer sentiment through sustainable products / services to grow market
share and activate employee sentiment by building a reputation for sustainability to attract talent
1. “In light of the COVID-19 outbreak, I am now more aware of the fact that humans can be threatened by the degradation of the environment" and "In light of the COVID-19 outbreak, I am now moreaware of how the climate is threatened by human activity". Respectively 72% and 70% agreement on these two statements
Source: BCG Survey on COVID-19 and Environment, run from May 20th to May 29th across China, US, UK, France, India, Indonesia, Brazil, South Africa; Number of respondents N=3249; BCG analysis

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Growing awareness of climate impact presents opportunity
for companies to increase market share and attract talentInvestors

Investors are increasingly incorporating
ESG metrics into decision-making

33%

of global AUM1 is in funds that consider ESG metrics during
investment process

Green bond market grows significantly

57%

CAGR of global green bond market ('15 to '19), resulting in a
total green bond & green loan issuance of $257.7B

Repercussions for corporate leadershipfrom investors

53

voting actions taken by BlackRock in 2020 against companies
that fail to meet sustainability standards

Opportunity for investors to standardize definitions of sustainable instruments / funds andset emissions disclosure / reduction requirements for their portfolio companies
1. AUM = assets under management
Sources: GSI Review 2018; UBS "What's on Investors' Minds / 2018 Volume 2"; Climate Bonds "2019 Green Bond Market Summary"; gofossilfree.org; BCG; Simfund; Broadridge; GBI

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Moving capital to ESG-conscious funds, with chance to define
financial and operational guidelines for sustainability

Facing higher green demands and calls for commitments tomove aggressively to net-zeroof the public wantcorporations to integrate
environmental
considerations into
products / services andoperations

1,675
companies signed up forRace to Zero,committing to set
targets to reach net-zeroby 2050

Average increase in cost for products with net-zero supply chains
Auto

FashionFood

Construction

Electronics

<$600

<$1

<$1

<$6K

<$4

<2% on a $35K
car

<2% on a$50 pair of jeans<4% on a$25 shoppingbasket<3% on a $200K
home<1% on a$400 smartphone

Decarbonization is much less expensive for companies at end of any given
value chain because raw inputs only account for a small % of total value

Source: BCG Survey on COVID-19 and Environment, run from May 20th to May 29th across China, US, UK, France, India, Indonesia, Brazil, South Africa; Number of respondents N=3,249; UNFCCC;BCG and World Economic Forum "Net-Zero Challenge: The Supply Chain Opportunity" report (Jan 2021)

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87%

Corporations

Steady progress in climate fight, but urgency remains

March 31, 2021

April 2, 2021

April 1, 2021

April 2, 2021

In a first-of-its-kind study, NASAmeasures direct evidence humans are
causing climate change

Putin, Saudi crown prince discuss
climate change, green energy

U.S. and China are turning theirattention to climate change as the next
path to commercial supremacy

Rapid global heating is hurting farm
productivity, study finds

March 31, 2021

White House unveils $2 trillion
infrastructure and climate plan

March 25, 2021

Oil industry's top lobbying group backs
climate action plan

March 30, 2021

'Big storage' is the next big technology
in the climate fightJanuary 26, 2021

BlackRock’s Larry Fink to CEOs: Get
serious on net-zero targets, or else
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As of 02 April 2021

1.

Set the overall ambition and low-carbon strategy, then measure and disclose

2.

Immediately implement quick wins to fund the journey

3.

Collaborate in ecosystems to address more costly levers

4.

Capture new, low-carbon business opportunities

5.

Align investment agendas with climate-conscious investors

6.

Enable your organization with low-carbon governance7.

Do no harm and advocate for policy support

Source: BCG and World Economic Forum's "Aligning to Net Zero" article (March 2021)

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7 actions CEOs must take on the route to net-zeroSet the overall ambition & low-carbon strategy, then measure & disclose4

Key questions all CEOs must answer thisyear to achieve net-zero:1 What does my market look like in a net-zero world?

Looking ahead
Best practices for companies toimplement immediately:•

Understand and educate on
climate science, climate risks, andbusiness implications•

Publicly report on emissions
baseline2 and progress•

Set ambitious short- and longerterm reductions targets (i.e., via
Science-Based Targets initiative)•

Adjust business strategy to adapt
to climate change effects andmitigate emissions for lasting
differentiation in a net-zero world•

Execs can lead by example tochange the company culture

2 What is my business model for succeeding in that market?
3 What changes should I make now to prepare for success?
4 What supporting conditions will I also need and how do I go

about winning them?

1. The EU and SBTi are targeting net-zero greenhouse gases by 2050. 2. Using Taskforce on Climate-related Financial Disclosures (TCFD) guidelines
Source: BCG analysis; European Union; Science-Based Targets; BCG and World Economic Forum's "Aligning to Net Zero" article (March 2021)

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Net-zero means reducing and neutralizing emissions that are produced.1
To do so, CEOs and their boards need to create transparency, set an ESG
strategy, and commit to concrete targets.

1

2

Immediately implement quick wins to fund the journey
Looking ahead<$12$12-120>$120

While some levers are less costly, it isstill important to anticipate common
challenges when reducing emissions:•••

Emissions Circularity Efficiency Renewable Fuel/feed- Low-carbon
stockhydrogen
today/recycling
power
switchCCUS1

Carbonremoval

Initial 30-40% of emissions reduction can be achieved through lowcost or mature technologies, typically generating savings2
1. Carbon capture, utilization, and storage. 2. Based on BCG case experience
Source: BCG and World Economic Forum "Net-Zero Challenge: The Supply Chain Opportunity" report (Jan 2021); BCG analysis

Lack of transparency
Challenges in executing changes
Limited support from broader
ecosystem (e.g., customers,
government)

Value-generating initiatives for CEOs:•1 Create transparency in emissions
baseline and improvements•2 Optimize for CO2 in products andprogress•3 Engage suppliers on emissions•4 Push ecosystems and partners•5 Enable organization throughgovernance and incentives
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Key emissions reduction levers and typical abatement costs(per ton of CO2 equivalent)3

Collaborate in ecosystems to address more costly levers

Agility and speed
to quickly find
new product andmarket fit

Venturesandstartups

Capital, businessguidance, network

IP, research,technology,
talentTechnology
integration,
Companies industrial andcommercial
capabilities

Local and international
connections, mentoring,facilities

Priorities for various organizations within these ecosystems include:• Governments: Enable and incentivize climate innovation• Investors: Focus on how to contribute to financing the transition to new tech and business models• Companies: Assess global needs, strengths and capabilities, and potential impact
1. Carbon capture, utilization, and storage
Source: BCG "The Next Generation of Climate Innovation" article (March 2021); BCG and World Economic Forum "Net-Zero Challenge: The
Supply Chain Opportunity" report (Jan 2021); BCG analysis

ExampleCompanies pursuing costly innovation
solutions will not succeed in a vacuum
Broad and deep ecosystems are
crucial for the sustainable applicationof advanced technologies
For example, the energy sector willplay a critical role in decarbonizationof other industries through levers
such as alternative fuels andmanagement of CCUS1
Traditional boundaries will be
stretched: Leading firms will need totraverse across sectors(e.g., battery storage and mining)
through cross-sector collaborations,
M&A, and/or investments (e.g.,
metals, transportation)
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Ecosystems
accelerate thespeed / scaleof change andovercome
barriers via
collaboration
and risksharing

Investing in basic
research, creating theright environment tofoster innovation

4

Capture new, low-carbon business opportunities

Create new
businessmodel ormarketBusiness
model
Improveexisting
businessmodel ormarketReimagine

InventNew solutions that fulfill
customer needs in newways, avoiding emissions(e.g., rideshare with EVs1)

Deep-tech approachthrough breakthroughtechnologies(e.g., alternative proteins)

RebootToward better, accelerated
deployment of existing lowcarbon solutions(e.g., renewable diesel)

Improve the productoffering with new lowcarbon technology(e.g., cheaper batteries)

Technology

Companies are not confined to 1 areaof innovation – they can and shouldplay in multiple areas at once or
explore opportunities in the 4quadrants of the canvas over time

3 lenses for identifying opportunities:

Reengineer

Scale

Breakout growth

Key takeaways•1

Global need: Find ways to change
the competitive environment anddrive pressure on the businessecosystem to reduce emissions•2

Strengths and capabilities: Use
company's assets and expertise,along with partnerships•3

Potential for impact: Look forchances to drive both economic
and ESG impact

Transformation

Breakthrough1st-gen "green champion" companies2 generate shareholder returns at big tech3 levels(~30% p.a.). AI can also reduce GHG emissions by 2.6-5.3 gigatons, or 5-10% of the total.
1. Electric vehicles. 2. Includes Enel Group, Iberdrola, Neste, NextEra Energy. 3. Companies include Amazon, Apple, Facebook, and Google
Source: BCG "The Next Generation of Climate Innovation" article (March 2021); BCG "Reduce Carbon and Costs with the Power of AI" article (Jan2021); BCG analysis

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Sustainability Innovation Canvas: build on momentum & accelerate innovation

Align investment agendas with climate-conscious investors

Common decarbonization themes
across sectors

Majority of investment need isin Asia

$12T
10%

$21T
17%
$66T
55%
$95T
78%

Investors can help guide capitalto key growing areas:
Electrification ($95T)
Largest investment need calls forcorresponding switch fromfossil-fuel-based power torenewable power

$14T
11%

$15T
12%

Key takeaways

$21T
17%

Electrification & renewables

Asia

EuropeEfficiency & circularity

North America

Rest of world

Alternative technologies
Source: BCG and Global Financial Markets Association "Climate Finance Markets and the Real Economy" report (Dec 2020); BCG "The Next
Generation of Climate Innovation" article (March 2021)

Demand from Asia ($66T)
Driven by scale and pace ofgrowth in Asia's economies.
Financial innovation may
facilitate global funding channels
as Asian markets open toforeign investors
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Venture capital investment in climate technology is growing 5X faster than inother technologies. Companies should accelerate solutions in key areas of need.

56

Enable your organization with low-carbon governance

Example onright panel

Steering Model

Carbon Controlling

KPIs & Reporting

Ownership of the topic
embedded at all levels, fromboard to business units

Decision-making processes
account for climate impact(e.g., internal carbon pricing)

Report internal and external
KPIs integrated into standard
reporting process

Performance
Management

Data &
Systems

Roles &
Responsibilities

Link incentives for executives,
managers, and employees toclimate-related KPIs

Tools and systems to facilitate
monitoring of key KPIs (e.g.,energy efficiency
performance)

Define roles, responsibilities,
and team structure to ensure
climate plan trickles down
across the organization

Source: BCG

Carbon controlling
Introducing a meaningfulinternal carbon price mechanism
and linking key performanceindicators to decarbonization
efforts can be a valuable tool toalign internal incentives andfund green projects
Such a tool can be used to help
make and evaluate the costs andrisks of climate-related decisions
across CAPEX, OPEX, supplier
criteria, R&D, and pricing

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6 elements to consider when rewiring decision-making for low-carbon governance

Example7

Do no harm and advocate for policy support

Scale up of renewable power
incentives and more investment
in storage / grid reinforcements

Incentives for EV2 ownership andinvestments in charging
infrastructureStandards for net-zero buildings
and stricter efficiency criteria forhousehold appliances

1. Including lobbying and association activities. 2. Electric Vehicle
Source: BCG

Efficiency incentives forindustrial processes and public
procurement of green industrial
goods (e.g., cement)

Incentives for farmers to moveto sustainable agricultural
practices
Investments in waste treatment
infrastructure domestically andthe right to repair products forincreased circularity

Looking ahead
Many countries can benefit frominvestment in a low-carbon
economy. The global risks ofinaction are escalating forclimate and sustainability (e.g.,
sea level rise, fires, droughts,
water shortages)
Making the case for stronger
policy support and promoting amessage of green growth andjobs provide reassurance topolicy-makers who look tobusiness leaders to confirm
support for national net-zerotargets and policy frameworks

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Do no harm: CEOs should first ensure activities1 do not undermine climate action
Then, advocate for regulation – promote stronger policies and green growthThere will be asustainability
scarcity:
opportunity forfirst-moveradvantage

Topic

Challenge

ActionFragmented
supply chain

43% of companies experienced
supply chain challenges due toscarcity of natural resources inlast 2 years

Tailor approach for suppliers
based on capabilities; create
long-term pricing contracts
with new & existing suppliers

Carbon credits

2024 is when demand forcarbon offsets projected to
begin outpacing supply

Lock in high-quality carbon
supply early; rigorously track
emissions; consider becoming
carbon credit supplier

Recycled plastics

45% of projected 2025 recycledplastic demand not met bycurrent supply1

Issue offtake agreements toencourage infrastructuredevelopment

Clean hydrogen

100-200x green hydrogen
supply growth required to meet
2050 projected demandEnter developer/technology
space; differentiate withintegrated systems

1. Based on recycle targets from Ellen Macarthur Foundation progress report - signatories accounted for more than 20% of the plastic
packaging market
Source: EIU based on 2016 study; Cairn Energy Research Advisors; The Global Commitment 2020 Progress Report, Ellen Macarthur; BCG analysis

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Example actions

Countries are expected to increase environmental commitments at COP26

COP26 will take place from Monday, November 1st – Friday,
November 12th, 2021. Heads of state and climate experts willalign on coordinated action to reach net-zero by mid-century

In March 2021, BCG was selected as the Consultancy Partner of COP26"COP26 represents a pivotal moment in the global drive forbusinesses, governments, and society to take decisive action, andwe are honored to be able to play a role in this."–Rich Lesser, CEO of BCG
Source: COP26; BCG

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The UK will be hosting the 26th annual session of COP(United Nations' "Conference of the Parties") in Glasgow. The
summit is the most important global climate conference since2015, when countries agreed to global climate actions in Paris

(BCG & WEF) Aligning to net-zero: how CEOs can get on
board with the transition

The next generation of climate innovation

Alternative-protein market to reach at least $290B by
2035(BCG & WEF) Net-zero challenge: the supply chain
opportunity (report summary)

How we can curb climate change by spending 2% moreon everything (TED talk)Spurring economic growth through climate action(BCG & GFMA) Climate finance markets and the real
economyReduce carbon and costs with the power of AI

A new course for climate in the US?

Source: BCG

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Additional perspectives on climate

Disclaimer

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Executive
Perspectives

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