In the lead-up to the United Nations’ Climate Action Summit next week, we look at how businesses should be thinking about climate change and the actions they need to take now. What’s working, what’s not, and where are the opportunities for growth, innovation, and resilience? |
|
|
“Business leaders must realize that their decisions over the next decade are absolutely critical to reversing climate change,” Dickon Pinner, the global leader of McKinsey’s Sustainability Practice, said at the Aspen Ideas Festival this summer. Executives “will need access to the best available data, forecasting techniques, and risk analytics to make informed decisions—ones that weigh sustainability goals against business objectives.” The problem? The right information isn’t always getting to the right decision makers. |
Many executives are preoccupied with the cost of climate-related changes, Pinner says. “I always point out that businesses are already facing huge financial losses due to climate risks, and these losses will only get bigger as the frequency and severity of extreme weather events increase.” |
Case in point: utilities in the United States, where extreme weather is exacting a high—and rising—price. As asset-heavy businesses that maintain extensive and expensive infrastructure, utilities are making moves to become more resilient. Defensive measures can include hardening the existing grid and exploring options such as battery backups and microgrids. Utilities also need to keep risk reviews current and strike up new partnerships to develop resiliency strategies. |
Here are five areas where companies can push sustainability in the right direction.
- Renewables. Wind, solar, and other power sources are increasingly viable as coal use declines. New York State’s clean-power targets provide a relevant case study for other markets, including the European Union, which has ambitious decarbonization goals, a large base of hydropower, and a strong reliance on natural gas. Other states along the US East Coast have made strong commitments to offshore wind, emphasizing the opportunities for job creation.
- Innovation in mobility, especially to reduce or reverse gridlock and pollution in cities. Here’s a cool idea to contemplate (while sitting in traffic, maybe): electrified, shared autonomous vehicles (AVs)—also called robo-taxis or shuttles—could revolutionize urban mobility, making transportation more affordable, efficient, user friendly, and environment friendly. No one knows when this technology will be mature enough for widespread use, or when or how mass-market adoption might start. But many companies are already operating large testing fleets of shared AVs, and more plan to launch fleets sometime before 2022.
- The circular economy. Old industrial models of “take, make, dispose” are being disrupted. On the rise are models that create value and safeguard the environment by improving the management of resources, eliminating waste through better design, and maximizing the circulation of products, components, and materials in use. In a new textiles economy, for example, clothes, fabrics, and fibers are kept in play—thanks to programs such as recycling and turn-ins of old garments—so that as little as possible ends up as waste.
- Sustainable investing. In this model, shareholders find value not just in corporate growth but also in a company’s commitment to three criteria: environmental, social, and governance (ESG). More investors want to know whether executives are running their businesses with these factors in mind. However, according to a recent McKinsey survey, investors said that lack of uniformity in companies’ sustainability disclosures has made it difficult to use them to make investment decisions, pointing to room for improvement.
- Sustainable agriculture. Meat has been the main source of protein in developed markets for years, and in developing markets, the appetite for traditional protein has recently grown. But concerns about health, animal welfare, and the environment are driving changes in consumer behavior and accelerating the rise of alternative proteins, derived from soybeans, peas, cultured meats, and even insects.
|
|
|
|
OFF THE CHARTS |
Electric vehicles: A jolt for automakers |
The global market for electric vehicles (EVs) has grown by about 60 percent a year, reaching 2.1 million units sold in 2018. Regional performance varies, with some EV markets approaching near-mainstream status and others stuck in neutral. Overall, global EV-sales volumes are becoming large enough to create substantial profit pools for well-positioned suppliers and other upstream players—even as they feel growing pains in their supply chains and bottom-line results. |
|
|
|
|
MORE ON MCKINSEY.COM |
Peak energy and the rise of renewables | Global energy demand is headed toward a plateau over the next ten to 20 years. We talk facts and forecasts with McKinsey senior partners Namit Sharma and Christer Tryggestad. |
The future of energy in Asia | Senior partner Azam Mohammad, who leads McKinsey’s energy and basic-materials work in Southeast Asia, says the sector will likely be driven by renewables and innovative energy technology. |
Bringing (solar) power to the people | About a billion people have no access to electricity. Solar home systems can help to bridge the electrification gap in developing countries—if certain conditions are met. |
|
|
|
THREE QUESTIONS FOR
|
Rachel Meidl |
Rachel Meidl, an energy and environment expert at Rice University’s Baker Institute, specializes in issues related to hazardous waste and the environment. Over the past five years, plastics has climbed the environmental agenda—and for good reason. Scott Nyquist, a McKinsey senior partner and global energy expert, recently spoke with Meidl about plastic’s environmental effects.
|
|
|
|
|
As you delve deeper into the topic of plastics and the environment, what are you learning? |
What I’m learning comes broadly under the categories of knowledge deficiencies and data gaps. For example, we have a limited understanding of the health impact of plastics in waterways, and of the ecotoxicology of macro-, micro-, and nano-plastics. There is a lack of standardized sampling, testing, measuring, and analytical methodologies. |
There is a need to develop exposure modeling to properly assess the hazards and validated risk assessments in order to evaluate and understand the interaction of plastics with other stresses in the environment. Currently, it is difficult to conduct studies and draw valid, reproducible comparisons because there is no globally standardized approach. If we want to improve marine and human health, we need to create harmonized international methods. Otherwise, we cannot fully comprehend the effects of plastics on the entire ecosystem, including below the ocean’s surface or in freshwater systems. |
I’m also seeing a lack of understanding of the unintended consequences and trade-offs of plastic alternatives. This is important if we want to replace or supplement plastics with options that are better for the environment, people, and the economy, and that do not further contribute to global waste and climate issues. |
Let’s talk specifically about plastics in oceans and other waterways. Please define the problem. |
We know that five countries account for about half the plastics that make it into the oceans. Eighty percent comes from land, and ten river systems transport more than 90 percent to oceans. Understanding this geographic clustering is an important revelation and is the first step to begin transforming the plastics economy. |
If we want to turn the corner, the focus should be on the areas of highest risk, where we can institute and improve the regulatory systems and waste infrastructure. However, we should be cognizant of the fact that the capabilities, capacity, and resources in developed countries usually outpace those in developing economies. Just because a particular action is feasible in, say, Europe, does not mean it can work elsewhere. |
In regions or countries that lack recycling infrastructure or advanced technologies, the most economical choice, at least in the short term, may be to manage plastics in a regulated landfill. While this may not be ideal, it could at least prevent migration of plastics into the waterways. |
McKinsey has estimated that there could be a business opportunity on the order of $55 billion to $60 billion in revenues related to new approaches to plastics recycling. Do you think this is likely to happen? |
It will only happen if we bring value back to plastics; these need to flow back into the economy as a valuable resource. Plastic waste is an untapped resource and loses value when designed for single-use and subsequently collected and sent to a landfill or recycled into a lower-grade product. |
It’s possible to create this kind of business opportunity, but it will require a significant paradigm shift—toward deeming plastic as a resource and not a waste. This will require novel approaches to chemical recycling and associated regulatory reform. It will require new infrastructure, supply chains, and partnerships. And if we want to expand the market, we need better solutions that drive process efficiencies and improve cost structures, while enhancing plastic’s overall value. |
|
|
BACKTALK |
Have feedback or other ideas? We’d love to hear from you. |
|
|
|
|
Copyright © 2019 | McKinsey & Company, 3 World Trade Center, 175 Greenwich Street, New York, NY 10007
|
|
|
|