COP27: Accelerating decarbonization

Over several sessions, McKinsey experts and special guests discussed capturing opportunities in the material transition, catalyzing decarbonization in hard-to-abate sectors, and how leading institutions are addressing these obstacles through technology and innovation.

Here are the highlights, which have been edited for clarity. You can watch replays of McKinsey’s sessions here.

Acceleration starts at the top. Former Colombia president Ivan Duque shared his experience of establishing a climate action cabinet and catalyzing the country’s carbon-credits market. Big unlocks can happen when sustainability is a “priority of the president,” he said, and encouraged heads of state to pursue “market-driven, natured-based solutions” that are “sustainable, scalable, and replicable.”

McKinsey partner Nikhil Ati shared four areas of focus for CEOs who want to accelerate their organization’s decarbonization initiatives.

  • Prepare the organization for change: Hire talent and build the right capabilities to ensure the business is ready for the transition.
  • Create detailed, credible decarbonization plans: “The more detailed the plans are, the more you learn about what works.”
  • Participate in the ecosystem: Allow leaders across the value chain to bring various stakeholders together for “win-win solutions.”
  • Speak with one voice: Convene stakeholders across government, academia, philanthropy, and industry, and encourage them to “drive the narrative with one voice.”

Partnerships, standardization, and transparency are required across the value chain. Thomas Moller, executive vice president at Alfa Laval, said unlocking “magic” in the materials transition will require strong partnerships across the value chain. He noted his organization was previously more focused on in-house patents and IP, but is now seeing more joint ventures and shared IP. “It’s a completely different way of doing development these days,” he said, adding that innovation and knowledge-sharing becomes “much more reliable, much more scalable, and much more bankable” through partnership.

Renae Kezar, VP of global sustainability and regulatory affairs at Johnson Controls, said standardization and transparency are also critical across the value chain to ensure the industry is working together against the same targets—otherwise it will be challenging to measure impact. According to Elisabeth Brinton, corporate vice president of sustainability at Microsoft, a “virtuous cycle” of trust and transparency, which includes getting frontline data to the enterprise, can help businesses speed up their decision-making process.

Frederick Teo, CEO of GenZero, also raised the importance of standards harmonization for scaling voluntary carbon markets. “At the end of the day, carbon credits are meant to help corporates, institutions, and others along on their decarbonization journey. It's not an end in itself,” he said. “But what does it take to actually decarbonize? What does it mean to claim net zero? Today, depending on the logo that you put on your wall, it could be slightly different approaches to count the actual amount of carbon that you need to deal with, as well as the solution sets that are available to you to claim net zero.”

Industry collaboration can influence price signals to motivate investment in low-carbon industries. “We’re in the early innings of a world where carbon is a price-relevant variable,” said Peter Hannah, senior price development manager at Fastmarkets. “We need that price signal to really continue to crank the pressure, so we that see the investment that we need.”

Voluntary carbon markets could be worth upward of $50 billion USD per year by 2030, according to McKinsey analysis. Joseph Nganga, VP for Africa at the Global Energy Alliance for People and Planet, offered a three-part wishlist that would help them scale.

  • Government stakeholders need help planning and designing a country-plan for their carbon agenda to ensure that they capture the opportunity in terms of revenues. “If they don't have the right policies and regulations, it's very possible that they miss an opportunity, at best, and actually make pretty long-term, damaging decisions in terms of how and which carbon credits they keep for themselves, versus which they sell.”
  • Increased visibility on buyers, who can send a “signaling effect” to investors and early-stage project developers, “could incentivize early-stage risk taking to drive the agenda.”
  • Standard verification processes and methodologies among the international community could unlock scale—and speed. “For example, we are supporting Nigeria’s drive toward electrification, replacing the ubiquitous diesel generators in every house with solar generators. But there is no methodology for capturing that benefit.”

The importance of “green wishing” and innovation in the “lots-to-abate” sector. Microsoft’s Brinson said society needs to celebrate progress and raise society’s green ambition. There’s no one-size-fits-all approach, she said, and underscored the importance of “green wishing” to set aspirations. Elsewhere, several guests spoke about their desire to change the expression from “hard-to-abate” sector, to the “lots-to-abate” sector; solutions to abate some industries such as aluminum exist—but haven’t been deployed at the speed and scale required to meet climate goals. “We need innovation to move forward and solve these problems,” said McKinsey senior partner Tarek El Sayed.

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