Financing net zero: Banks and companies cooperating on decarbonization

Getting to net-zero emissions can be complex and costly. At McKinsey’s Tomorrow Conference, three European executives discussed the capital requirements and banks’ efforts to help companies meet them.

To get a firsthand account of how companies have been addressing the considerable challenge of achieving net-zero emissions, McKinsey interviewed three European executives at the McKinsey Tomorrow Conference, held in Berlin in November 2021. The industry perspective came from Dr. Martina Niemann, CFO at DB Cargo, and Walter Oblin, deputy CEO and CFO at Austrian Post, who talked about detailed steps their companies have taken thus far and the still-considerable plans under way. In addition, Stuart Lewis, who was then chief risk officer at Deutsche Bank, provided a view from the financing side. 1 McKinsey senior partners Holger Harreis and Stefan Helmcke led the discussion.

McKinsey: Walter and Martina, let’s start with you. What are your companies doing to reach net zero?

Walter Oblin, Austrian Post: Austrian Post made sustainability a strategic priority ten years ago. Now we operate by far the largest electric fleet in Austria: 2,000 vehicles. We’ve also reduced our carbon footprint by 40 percent. Last year we stepped up our commitment. Our ambition now is to become net zero by 2040, and we have clear milestones until 2030.

We think that is feasible, and we have a clear road map to reduce our three scopes of CO2 footprint. The first one is buildings. In Austria, we operate one million square meters, including delivery depots, sorting centers, and branch offices. I think the way for buildings is relatively easy. It’s basically going toward green electricity. We’ve done much of that already. What’s left is building heat, where we’re trying to eliminate fuel-based and gas-based heating. The second third of our CO2 emissions comes from last-mile delivery. There, the technological solution also exists; it’s electric vans. Those work and, in most of our situations, have a positive total cost of ownership. The third piece is long-haul trucking. That’s where technology is still the open question. Is it hydrogen? Is it electric trucks? Is it e-fuels?

Martina Niemann, DB Cargo: DB Cargo is running 95 percent of our transport on electricity, and two-thirds of that electricity is from renewables. DB as a whole is Germany’s biggest consumer of renewable energies. For our customers, switching to rail transport means they can save 80 percent of CO2 emissions.

Deutsche Bahn also wants to become climate neutral by 2040. As of today, the CO2 emissions of DB have been reduced by 35 percent compared to 2006. The initiatives for diesel phase-out on rail are included in our midterm planning, and we want to switch to 100 percent green electricity in all DB buildings by 2025.

The biggest issue now, to make the whole logistics industry carbon neutral, is either expanding the volumes transported by electrified railroad systems or implementing sustainable fuels. We still have to get rid of 20 million tons of CO2 emissions each year by 2040. When we expand the electrified railway systems, there are additional CO2 emissions from doing so, but the savings in the long run will be so much greater that I think this investment is without alternatives.

McKinsey: Getting all the way to net zero sounds as though it could be costly. How much funding will it take, do you think?

Martina Niemann: The rail freight sector has a market share of 18 percent in the modal split in Germany. To get that to 25 percent, we need €52 billion of investment until 2030, with two-thirds of that in infrastructure—new tracks, for example—and the rest in rolling stock and in digitization and automation.

Walter Oblin: Compared with a rail company, I think we are relatively asset light, so the financing need for our company is not huge. We’re talking about reinvestment in our fleet, which typically runs in cycles of six to eight years for vans and ten to 15 years for trucks. The cost of electric vans is not significantly different from the cost of trucks with combustion engines. So it’s less a financing challenge for us. It’s more an operational-cost challenge, and in some areas, it’s a technological question.

McKinsey: Stuart, how is Deutsche Bank addressing needs such as these for transition finance?

Stuart Lewis, Deutsche Bank: We think we can help access financing through our own balance sheet. But there’s also huge demand for sustainability from a variety of investors across the capital structure. We originate equity securities and fixed-income securities, and we’ll continue to do that. We have a goal to raise in excess of €200 billion of sustainable financing and investment by the end of 2022, and we’re well on track to achieve it.

I think we are doing a reasonably good job of trying to help our clients understand what their scope one and scope two positions are and making financing available, contingent on reaching certain emissions goals.

McKinsey: Martina, is that enough, from your standpoint? What else can the financial sector do to support the transition?

Martina Niemann: The ESG [environmental, social, and governance] angle is indeed very important. Banks can help our customers to decarbonize. Linking finance to compliance with ESG norms is the most important thing. Our customers will adapt automatically as funding institutions limit finance to companies that comply with ESG norms and stop financing companies that don’t.

Walter Oblin: Often the question is whether there is a reward in the marketplace for companies that decarbonize. Big lenders and equity investors can help create those incentives and put pressure on customers to favor ESG-compliant and ESG-ambitious providers.

Stuart Lewis: I think we’re seeing this happen in the marketplace. Bonds are being issued and loans are being made with ESG covenants and emission targets. The cost of funding will be lower for companies that meet ESG criteria, or there will be a penalty if you don’t satisfy those criteria. We’ve done some of that with German midcap companies around some of their sustainability goals.

McKinsey: How practical is this for financial institutions?

Stuart Lewis: The real challenge for banks is scope three emissions, and that’s a data question for the banks. But regulators have to reach a common taxonomy on the type of data that banks ought to be processing. I believe that’s happening in many governments globally. But we saw at COP26 that governments are still not really reconciled to what their requirements are for addressing that challenge.

Within our own organization, we are setting what we call pathways for some of the more carbon-intensive industries we deal with. We’ll be making those public. So the expectations we will have around how everyone needs to perform in order to get financing will be made quite clear.

McKinsey: Walter and Martina, earlier you mentioned that your organizations also need new technologies to get to net zero. Can you say more about those needs and how financing can help meet them?

Walter Oblin: One of the open technological questions is, What is the right solution for long-haul trucking? One technology we are prototyping is a hydrogen-fueled truck. For that to work, three things need to come together. First is the infrastructure. Second, we need the trucks. Our ambition is to have the first hydrogen truck on Austria’s roads by 2023, but somebody needs to supply those trucks. And there we face a chicken-and-egg dilemma. Without a critical mass of trucks on the road, nobody wants to finance the infrastructure. But without the infrastructure, nobody wants to provide the trucks. Third, I think there is an unanswered question of financing and subsidies about how to finance new technologies until they are cost competitive.

Martina Niemann: It’s also a matter of speed. The German market for transportation, including cars, trucks, and airplanes, emitted 164 million tons of CO2 in 1999. What do you think they emit 30 years later? Exactly the same amount. The sector is growing at such a speed that the emissions initiatives taken so far hadn’t made a difference until last year, when the COVID-19 pandemic lockdowns hit. This is too slow. The targets for Europe and Germany are now set in a way that we have to reduce 48 percent of CO2 emissions from passenger traffic and freight traffic by 2030. So we have to go from no reductions in 30 years to 50 percent in ten. I learned from one company that they’ll have their prototypes for zero-emissions trucks ready in 2027, which is definitely too late. So there has to be financing for faster innovation, for manufacturing new technologies on a large scale, and for helping companies reduce emissions by buying these technologies and integrating them with their operations.

McKinsey: Stuart, how do you think about financing climate technologies that are at an early stage of development?

Stuart Lewis: We probably shouldn’t underestimate the amount of equity interest in sustainability, but some of these risks on new technology are clearly quite high. Some of the higher-risk technology ventures really need equity capital, and we see that generally there’s a lot more private-equity interest in this space.

Whether the timing is as quick as you would hope—that’s another matter. That comes back to policy and regulation. If you’re just trying to drive decarbonization and net-zero emissions through the banking sector, that will only succeed in part. Many of the equity incentives you would normally associate with some tax advantage on investment in ESG initiatives need to be broadly based across the EU and potentially globally as well.

McKinsey: We see in our research that, industry by industry, decarbonization pathways often look completely different. In industries like Walter’s, there might be a net-zero pathway at zero additional cost, and then we see industries like steel that are disrupted, where you need green hydrogen. How do you think about situations where substantial investment is needed or transformation depends on subsidies?

Stuart Lewis: We’ve got a couple of concerns about how the regulatory environment would view that financing. Suppose I’m already lending to a company in the steel sector, to use your example. As the regulators currently see it, if I extend more financing to them to help with their transition to a cleaner operating environment, I’ll be increasing my carbon emissions exposure, and that’s against everything the regulators tell us. They’re trying to force us to reduce that emissions exposure.

So we’ve got to do more work on defining acceptable types of lending to CO2-intense industries. I also wonder whether some emissions-intensive companies that are making this transition might have to restructure their legal composition, so they can avoid being caught by some of the regulatory bank pressure we face. Then banks could show that they are trending down in the legacy type of business and trending upward in the new businesses that are helping with the transition.


This panel discussion highlights impressively the challenges that both parties—companies on their way to net zero and banks acting as transition partner—are facing. On one hand, there are high investment costs, depending on the industry; an operational-cost challenge; and complex technological questions. On the other hand, companies face limited amounts of accessible equity capital, partially defined regulatory requirements, and high risk profiles, especially in early technology stages. Our panel’s responses also highlight the benefits of acting as mutual partners in this complex situation.


Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.

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