COP27: Playing offense on the path to net zero

Scaling green businesses and climate technologies holds enormous potential for the net zero transition. Growing demand for net-zero offerings could generate more than $12 trillion of annual sales by 2030 across 11 high-potential value pools, including transport, power, and hydrogen. But costs for most climate technologies are declining too slowly to abate emissions in line with 2050 net-zero targets. Breaking the cost curve will require significant acceleration to meet the moment.

Over several panel sessions at COP27, McKinsey experts and special guests discussed how leaders can catalyze growth in green businesses and innovation.

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

“This is about opportunity, and it’s about playing offense,” said UN special envoy on climate action and finance Mark Carney. He referenced the U.S. Inflation Reduction Act as an example of how policy can enable acceleration and pointed to green steel as an example where industry has built a coalition to drive innovation and competition. “It’s not an industrial policy, but an industry getting together,” Carney said. “Because of what [leaders] are doing through their supply chain and business processes, [they’re] re-engineering and reorganizing competitiveness for next-generation energy. That's fundamental. That's offense.”

Scaling climate technology innovation will require quantum leaps in progress, particularly in emerging economies. “Think of what happened in telecom,” said Carney, referring to the way many emerging nations skipped landlines and leapfrogged straight to mobile. “This is what's happening in energy and touching on all industries.”

While the scaling of sustainable technologies has historically stretched over years, the world now needs to hyperscale technologies, which would see them simultaneously spread and improve at pace. McKinsey partner Anna Granskog suggested the need for 200 to 300 green decacorns (unicorn companies worth at least $10 billion) by 2030 to meet climate targets.

Rich ecosystems and strong partnerships are critical to solving the net-zero equation. “Ecosystem is the new paradigm,” said McKinsey senior partner Bernd Heid. He said leaders need to think about the entire category of innovations—from hydrogen and sustainable fuels to batteries and energy storage—in a systemic way to achieve scale.”

“You need partners, you need friends,” Anna added, drawing agreement from all panelists in McKinsey’s session on scaling new green businesses. “There’s no silver bullet. We need huge amounts of [capital] deployments toward all technology.”

But what makes a good partner? McKinsey senior partner Harry Bowcott asked. Joonas Rauramo, CEO of the Helsinki-based green tech company Coolbrook, said a good investment partner should “share the long-term vision” and be able to commit more than just money, but time and effort toward shared goals. Vikram Kapur, president and chief growth officer of ReNew Power, added “alignment of purpose is essential.”

Research shows capital expenditures will have to top $276 trillion by 2050. Meanwhile, “risk has to be compensated,” said David Giordano, global head of climate infrastructure at BlackRock. Giordano explained that solving for the finance equation will be critical for scaling innovation in climate technology. Antonia Wrede, principal at the alternative asset investment firm KKR, said financing remains “tricky”; green investments often look like ventures early on or become infrastructure-like assets over time. “It doesn’t fit into traditional investment strategies,” Wrede said.

Rauramo laid out a three-part recipe for green businesses to attract capital: Leaders need to be able to show real impact (e.g. emissions reductions), prove cost-efficiency, and demonstrate what’s unique about their organization.

Read highlights from McKinsey’s sessions on financing the transition here.

Perfection must not become “a call to inaction,” said Jennifer Holmgren, CEO of LanzaTech. “It’s the best way to stop progress.” She called for “realism” on scaling efforts, pointing to the enthusiasm about hydrogen. While the most optimistic estimates predict hydrogen can scale in a few years, she says a more realistic view may be 20 years. “We fall in love with ideas [like hydrogen],” Holmgren says, which can halt progress on other efforts. “And if you get it wrong, then we’ve done nothing until that miracle cure shows up. And there are no miracle cures.”

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