To reach net zero by 2050, McKinsey estimates that the cumulative capital spending on physical assets after 2021 will total about $275 trillion.1 To develop the low-carbon assets required for the transition, new green businesses—startups and incumbent businesses alike—will need to hyperscale quickly. As the market for climate technologies grows, we anticipate that 300 ‘decacorn’ and 1,000 ‘unicorn’ companies will emerge by 2030, as well as dozens of sustainability-oriented funds of $10 billion or more. What will it take to become one of them?
McKinsey recently hosted its second Green Business Building (GBB) Global Summit in Stockholm. More than 500 green business leaders – from corporates, start-ups and investors – convened for two days to discuss the challenges and solutions for hyperscaling climate technology. Building on insights from last year’s event, McKinsey posed a question to the participants: how can green businesses keep scaling while also differentiating themselves from the increasingly intense competition?
This question hints at something promising: the green scale-up race is on. However, the pace is not yet fast enough to achieve net zero emissions globally by 2050. So far, we have identified just over 100 unicorns, a handful of decacorns, and one single $10 billion fund emerging in the sustainability space since 2015.
“We need to speed up and raise our ambition. As we do so, there will be a double urgency: quick action is not only required for the sake of the planet, but it’s also needed to get ahead of the competition as the scale-up race is entering its next phase,” said Tomas Nauclér, McKinsey senior partner and a global co-leader of McKinsey Sustainability.
The road to decacorn: out-execution
The green transition was always going to require significant investment, but it can also bring immense economic opportunities. Our research suggests that, by 2030, revenue pools of up to $12 trillion could be generated in 11 areas including transport, power and consumer goods.2 The companies that scale quickly will likely be best placed to capture these value pools.
At last year’s summit, McKinsey shared a formula for launching and hyperscaling green businesses. In the last year, through more than 10 additional convenings with green business builders around the world, we collaboratively explored the questions: What will it take to make better use of the formula than the competition? The answer we heard is that execution – or even “out-execution” – in seven critical areas can help green businesses stay competitive on the path to hyperscaling.
The following are the seven capabilities that are crucial for out-execution:
AI-enabled, fast-paced R&D. This ability allows green players to iteratively explore and develop different technological pathways to improve efficacy, reduce total cost of ownership and minimize ongoing customer spending to ensure “cost advantage”.
Plant-as-a-Product. Standardized, modular production facilities that can be replicated as demand scales can help accelerate speed, reduce up-front risk and can reduce costs by 10–20% for each new plant being built.3
Leading cost and operations. This describes the ability to access the lowest possible cost of capital by combining multiple sources (e.g., private finance, philanthropy or subsidies) with the right mix of mechanisms (e.g., debt, equity or project finance).
Supply & feedstock advantage. This refers to the ability to secure access to the right raw materials (e.g., feed stock) at necessary scale and at unit prices consistent with sustaining “cost advantage” versus competition.
New talent development. It all starts with leadership. CEOs need to be able to navigate the new and unique green business landscape while unifying the organization around a clear purpose. The importance of this capability was also underlined during the summit by Francisco Carranza, CEO at solid-state battery manufacturer Basquevolt: “It’s not easy, but you need to set yourself up so that everyone feels that they’re free to do their thing – free to fly – while the organization as a whole has a clear direction and takes one step forward every single day.”
Commercial excellence. This is the ability to secure a green premium through effective branding, pricing and distribution (through “go-to-market” innovation) and, among other things, secure captive demand. “There needs to be a strong value proposition that takes the end customer into account,” said Henrik Henriksson, CEO of carbon-free steel producer H2 Green Steel. “This means that, for example, we make sure to offer a good deal not just to car manufacturers – but to car buyers as well.”
Growth-enabling operating model. Green business leaders can benefit from maintaining an entrepreneurial mindset and ensuring that operations and structures remain agile throughout the hyperscaling process. “It’s about creating a culture based on delegated decision-making, where learnings are captured to drive exponential improvement. Targets and KPIs need to have clear accountabilities – and the bar for performance should be constantly raised,” said McKinsey partner Anna Granskog.
The seven capabilities for out-execution will not always need equal emphasis. Leaders can best consider what kind of business they are looking to scale and ensure that they are emphasizing the capabilities that matter most for their route to value creation.
The magnitude of what is required to achieve net zero is tremendous, and so is the opportunity. The 2023 GBB Summit demonstrated that many companies are taking on the challenge of driving the green transition with determination. Companies that build the right capabilities to out-execute on the finest of details as they hyperscale can set themselves up to play a key role in the green transition – and become one of the winners.
1 Financing the net-zero transition: From planning to practice, McKinsey, January 13, 2023
2 Accelerating toward net zero: The green business building opportunity, McKinsey, June 14, 2022
3 Innovating to net zero: An executive’s guide to climate technology, McKinsey, October 28, 2021