Creating strategies to reduce carbon emissions while positioning the group for long-term growth
A conglomerate with worldwide operations in more than 90 different businesses, many of them in carbon-intensive sectors, had ambitious plans for the next ten years and wanted to find ways to achieve its growth targets while reducing its carbon footprint.
Although the group’s main operations were in countries where there was little momentum behind action on climate change, it understood that it needed to take the initiative on environmental issues. It asked McKinsey to help it develop a low-carbon strategy for its individual companies and a sustainability roadmap for the group as a whole.
Its objective was bold: to take a leadership position on tackling climate change without compromising its growth ambitions, its shareholder value creation, or the development of its operations within its region and globally.
The effort faced a complex set of challenges: a large and diverse group spread across many sectors and countries, made up of companies operating autonomously under their own boards; lingering doubts among many executives about whether sustainability should be a priority, coupled with a tendency to see it purely from a regulatory or carbon-credit point of view; little recognition of climate change issues in current processes and systems; and unprecedented stress on core businesses as a result of the global recession.
Our team began by helping the client create a baseline carbon footprint for its companies for the present day and for 2030, taking into account existing growth plans in clean technologies and identifying cost-saving carbon abatement measures that could be implemented immediately.
Once the baseline had been established, the next step was to explore options to achieve growth targets while reducing the group’s carbon footprint. Drawing on McKinsey specialists with deep expertise in power, metals, chemicals, manufacturing, and services, the team worked with individual companies in the group to understand sector-specific climate change solutions and identify new business opportunities in renewable energy and biofuels, such as manufacturing components for the concentrated solar power industry.
To address risk as well as growth potential, the team investigated uncertainties in evolving technologies, such as batteries for electric vehicles, and explored a range of scenarios for regulatory change. Building on this solid fact base, McKinsey worked with the client to explore where it should compete in the value chain and plan the scope and scale of the investment needed to position each business for growth as technologies matured.
A key discovery was that the group’s directly incurred carbon footprint was only one third the size of the footprint it could influence by working with suppliers and customers to reduce carbon emissions across full product lifecycles.
Another important insight was that four of the group’s core businesses accounted for almost 85 percent of carbon emissions. This enabled the client to target abatement efforts on areas where they would have the greatest impact.
Finally, the low-carbon strategies for individual businesses were integrated into an overarching stance on environmental issues that would underpin the group’s aspirations, policies, metrics, regulatory approach, internal and external communications, brand positioning, and compliance mechanisms. The McKinsey team supported the client in defining its position on climate change and creating central capabilities, measurement systems, board dialogues, opportunity scans, and other processes to drive individual businesses toward their abatement targets.
With our support, the client created roadmaps for achieving significant emission reductions in the four businesses that accounted for almost 85 percent of the group’s manufacturing footprint. In the metals business, for example, the team identified measures that would reduce carbon intensity by 15 percent within ten years. In power generation, it identified methods to achieve a 50 percent reduction in carbon intensity over 15 years even while the business quadrupled in size.
Opportunities were also found for the businesses to reduce their carbon footprint and energy costs by about 10 per cent through operational changes that could be carried out fairly quickly at minimal capital outlay.
To support long-term implementation, McKinsey assisted the client in training over a hundred executives from a wide range of different businesses to make them more sensitive to climate change issues and equip them to make systematic assessments of the risks and opportunities in their businesses, using tools such as the global greenhouse gas abatement cost curve. These new “climate change champions” then helped each business to design its own low-carbon strategy and drive a communications effort from executive level through middle management to the front line.
The effort helped the group to address more than 95 percent of its manufacturing footprint within two years, an achievement of which it is extremely proud. We continue to work with the client’s high-level central committee as it drives the program across the group and into the next wave of companies.