Partner Insight: Climate innovation offers an enormous opportunity to build economic models and individual company advantage for the long term – beyond what is achievable through new technologies, according to Boston Consulting Group
Global momentum to reach net zero greenhouse gas (GHG) emissions is growing. Most are pre-occupied with the emissions cuts required and not how to achieve them, assuming the necessary technologies and solutions will be available as needed.
In fact companies are the best source of solutions and need to look beyond technological developments to explore business model and policy innovation to incite change. This is also the best way for them to address climate risks and create new business opportunities.
According to Boston Consulting Group, the major opportunities for businesses, investors, and governments must start with a shift in mindset to viewing themselves as providers of solutions; to focusing on new sources of revenue over rising costs and to seeking transformative models rather than incremental improvements.
Companies driving forward
There are some companies where this is already a reality. General Motors, who popularised the internal combustion engine, now plans to phase out production of engine vehicles by 2035.
Investors are also channelling money into climate technologies - investment in ESG ETFs doubled in the US in 2020 and the first generation of "green champions" such as Iberdrola, Neste, Beyond Meat and Tesla and are generating returns similar to the tech giants, demonstrating how climate solutions can create value.
Meanwhile, Finnish oil refiner Neste has pivoted from fossil fuels to develop renewable fuels and chemicals. It now offers its expertise in cutting GHGs as a service through a consultancy arm; whilst Norwegian crop nutrition company Yara, which started making fertiliser over a century ago, offers "precision farming" services such as using satellite technology to help farmers to optimise their yields.
Neste and Yara highlight that companies should firmly embed climate action in their purpose, strategy and culture, and they should highlight the long-term shareholder value created by low-carbon businesses.
Of course, deep-tech innovation will play a role in reaching net zero too - it will address fundamental challenges by using multiple technologies and collaborators to develop physical products. And importantly, it will disrupt market incumbants.
Take meat and livestock farming, which accounts for 15 per cent of global GHG emissions and 25 per cent of available landmass and fresh water. Memphis Meats is addressing these issues by producing meat products from cells instead of animals, saving energy, water and land resources. It is easier to address this as a start-up than an established livestock company, but incumbents need to invest in new solutions rather than honing existing solutions.
However, innovative climate solutions will not succeed in a vacuum. They need broad and deep ecosystems encompassing businesses, investors, governments, universities, research institutions, and others.
It is also important companies are not confined to one area of innovation. Indeed, they should pursue multiple paths, looking at where the need is most acute, where they can best leverage their own strengths and where they can have the most impact.
Early-stage investment in climate technology, for example, is growing rapidly, but from a very low base, and investors can step out of their comfort zones, focus on opportunity rather than risk, and extend the timelines of their investments to allow new technologies to move closer to commercialisation.
Governments must also look to create the integrated systems that will enable the low-carbon transition, through measures such as robust, uniform carbon pricing and policies that help to remove carbon-intensive products from the marketplace and incentivise low-carbon technologies, such as the EU's Horizon Europe programme and Germany's national hydrogen strategy.
Learn how your company can plot its own innovation path here.
This article is sponsored by Boston Consulting Group.