This time next week, leaders from around the world across the private and public sectors will gather in Glasgow for the 26th UN Climate Change Conference, known as COP26, to discuss working together to build a net-zero future. Over the course of two weeks there, McKinsey will host a series of panel discussions across topics including net-zero strategy, green business building, sustainable investing, and more.
We spoke with colleagues leading these sessions to find out which COP26 trends may help accelerate sustainable and inclusive growth around the world. Here’s what they had to say.
1. Falling green costs
There’s already a massive shift underway in the uptake of renewable energy sources, such as wind, solar, and hydro. What I’m most excited about is the cost reduction trend in these; they just keep on falling. This can generate a very non-linear effect. While costs for new technologies are higher than legacy technologies, uptake is low. But once costs fall to parity and below, the switch accelerates rapidly.
We’re also seeing this in electric vehicles and batteries. Some applications are starting to reach cost parity with internal-combustion engine vehicles. These costs may fall further, and this is exciting because it will change the economics and technologies of transportation, with powerful knock-on impacts for our climate, nature, and people around the world.
2. Decarbonizing hard-to-abate sectors
Jayanti Kar, McKinsey partner
On the present trajectory, even if every single one of today’s climate promises is kept, the world may fall short of the net-zero target. As a firm, we will be discussing how to solve the net-zero equation, particularly in hard-to-abate sectors such as aviation, shipping, and steel. We will explore how the private sector and the public sector can cover this work between them. What can each do alone, and what can they do together?
On this front, McKinsey is serving as a lead partner of Mission Possible Partnership, where we’re bringing over a decade of sustainability research, analytics tools and solutions, along with a dedicated team of more than 30 partners and experts to this challenge.
The right outcomes will impact companies, their stakeholders, and communities in a range of ways. I along with many others in Glasgow next week, will be looking at the financial frameworks and operating standards that get announced to help individuals, businesses, and institutions make informed choices towards lower carbon norms, while driving decisions that are practical, immediate, and achievable in a world of uncertainty. These will be essential to help leaders act boldly rather than incrementally, and work together to carry this moment for change beyond COP26.
3. Carbon valuation
Chantal Beck, McKinsey partner
One of the key areas of debate at COP26 will be Article 6 of the Paris Agreement, which has to do with carbon markets. Companies are actively looking at how to transition their businesses through moves including adjusting portfolios, reducing scopes 1 and 2 emissions, and building entry into new businesses. Setting the right market incentives will be important. International carbon markets play a huge role in this, and McKinsey has been deeply involved through our knowledge support of the Taskforce on Scaling Voluntary Carbon Markets.
A voluntary carbon-credit market allows for carbon credits to offset emissions entities can’t eliminate by other means. Now that we’ve seen increased commitment from organizations and countries on meeting net zero, the big question is how. This conference is a critical opportunity for leaders to come together and debate what’s required—through technology, financing, new business models, regulation, policy, and more.
4. Climate finance
Dickon Pinner, McKinsey senior partner and McKinsey Sustainability global leader
I expect we’ll see more countries launch or extend the ambitions of their nationally-determined contributions, or national climate plans. I also expect to see more corporates committing to net-zero targets and other science-based goals. That’s table stakes. But I think a big part of success may hinge on what happens around climate finance.
Mark Carney, the UN special envoy on climate action and finance, recently published a set of recommendations for investors on tracking their portfolios against a net-zero pathway. I anticipate we’ll hear a real articulation of the need for the finance industry—banks, assets managers, asset owners, or other stakeholders—to mobilize and align on climate efforts. Elsewhere, we may see countries deliver on the goal, set in 2009, to commit $100 billion to help developing nations confront climate change.
5. Germany’s transition
Dr. Ruth Heuss, McKinsey senior partner
This past summer, Germany passed a new edition of the Climate Protection Act, which sets the national goal of reaching climate neutrality by 2045. As Europe’s largest national economy and a major exporter, Germany plays a central role in the continent’s transformation toward climate neutrality. While the country is in a strong starting position, none of this will be possible without concrete actions—specifically in the five most emissions-intensive sectors: energy, industry, transportation, buildings, and agriculture.
What I’m hoping will come from COP26 is a crystallization of such plans along with a commitment to incubate new business models and invest in physical assets and new technologies. This, however, depends on bold and committed decision makers and broad citizen support. Such action would have meaningful implications for strengthening Germany’s position as an industrial hub and for creating new jobs for the future.
6. Nature conservation
Duko Hopman, McKinsey associate partner
Since the release of our research on the value of nature conservation last year, more and more stakeholders realize the climate and biodiversity crises are mutually enforcing and can’t be solved in isolation. Our models show that a 1.5-degree pathway cannot be achieved without major investments in nature. Similarly, without addressing the climate-change crisis, biodiversity—both in terms of species variety as well as population sizes—will continue its current tailspin.
At McKinsey, our nature analytics experts partner with clients in this space. We’re particularly excited about innovation in nature-based solutions for a couple reasons: First, the impact goes beyond climate outcomes. Our own research shows nature conversation has the potential for at least $500 billion in GDP creation, job creation for 30 million, and significant improvement for rural, remote communities.
And second, while we think there’s a huge role for technology to play in decarbonization, much of it will take years to scale. Nature-based opportunities are readily available at-scale today, including well-established approaches, such as the protection or restoration of forests and mangroves, along with more innovative or emerging solutions, such as the protection or restoration of seagrass or salt-marsh ecosystems, managing boreal forest fires, or growing seaweed offshore.
7. Climate adaptation
Mekala Krishnan, McKinsey partner
Adaptation is critically important. Our research shows that climate-related physical risks will continue to rise, regardless of what progress we may make on emissions cuts. Some amount of warming is still guaranteed because of the physical inertia of earth systems; as a result, we need to have measures in place to manage that rising risk. These measures are particularly important because physical risk has everything to do with our own lives and livelihoods—it has an impact on livability, workability, physical assets, natural capital, and more. It’s important to our clients because of the potential impact to their operations, supply chains, and customers, and more broadly, it’s potential impact to the communities we all live in.
The good news is that we’re seeing more enthusiasm about climate adaptation—in part because we are simply seeing more impact from rising physical hazards. But I think COVID-19 has affected our awareness, too, because of how many knock-on effects the pandemic, which began as a public health issue, are re-shaping our socioeconomic systems. Both governments and corporates, for example, are increasingly integrating climate risk into decision making. So, just as we expect to see new commitments to net zero at COP26, we hope to see stakeholders commit to more on adaptation measures, too.