Home > Professional Services > Expert Contributor

COP27: 8 Key Ways to Accelerate the Net-Zero Transition

By Marina Cigarini - McKinsey & Company, Mexico
Managing Partner

STORY INLINE POST

By Marina Cigarini | Managing Partner - Fri, 12/23/2022 - 11:00

share it

Global leaders convened in Egypt in November 2022 for COP27, as the world reached a pivotal point in determining the future of the planet. The transition to net zero was never going to be easy and recent headwinds, such as surging inflation, rising energy costs, and an ongoing war in Europe, have brought greater challenges to the journey.

In the context of a turbulent macroeconomic environment and fractious government negotiations, the transition has to deliver not just net-zero emissions, but also energy security, resilience, and affordability. It is less obvious that some of the critical targets that deliver a 1.5°C temperature outcome will be reached, which makes a focus on adaptation even more crucial. But whether we are focused on carbon reduction, removal, or adaptation, the time to act is now.

Based on our conversations with executives, government leaders, and official delegates at COP27, we see eight key takeaways to accelerate the transition and preserve security and affordability.

  1. The role of the private sector: From commitment to action. Like in Glasgow last year, the private sector showed up in force in Sharm El-Sheikh ready to roll up their sleeves at the “Implementation COP,” with a focus on doing more to turn their commitments into action. For example, the members of the World Business Council for Sustainable Development’s Partnership for Carbon Transparency shared the results of pilot projects where companies across product value chains successfully exchanged standardized product-level emissions data to address Scope 3 emissions. Such tools and cross-business collaboration allow companies to accelerate decarbonization at scale by identifying, tracking, and reducing emissions.

  2. The power of “and:” Shaping strategies that square resilience and net-zero commitments. Leaders will have to be much bolder and nimbler to create value and capture new opportunities for their organizations on the path to net zero. The zigs and zags of present conditions will tempt some leaders to question if their choices are binary and exclusive. For example, does solving the energy crisis today come at the expense of achieving a net-zero pathway? Or does investment in renewable energy mean the abandonment of existing energy infrastructure? Our discussions made clear that the best response to the current moment is making the choice of “and,” not “or” — that is, maintaining focus on the long term while adjusting in the face of present conditions, rather than opting for one or the other.

  3. The opportunity in playing offense: A strategy for the private and public sectors. McKinsey global managing partner Bob Sternfels recently wrote that the challenge facing CEOs at this moment is how to position their companies for such an important journey in such a complex, fast-moving, and volatile environment. Great companies and leaders will be those who seize opportunities to play offense now, making bets on new green energy businesses, deploying capital at scale, and decarbonizing incumbent businesses with new technologies.

  4. The spark of innovation: Advancing new climate technologies. The transition will require innovation across green technologies, from carbon capture and storage and carbon removals to sustainable fuels and sustainable agriculture. Now is the time to start building out these promising technologies so they can fulfill their potential to transform the energy system. The new low-emissions asset class that is forming can have attractive returns if investors provide support beyond money, lending also their expertise and guidance.

  5. The biggest capital reallocation of our lifetimes — for companies and nations. Navigating the net-zero transition while building energy resilience will entail a significant shift in demand, capital allocation, costs, and jobs — likely the greatest we have seen in our lifetime. A McKinsey analysis estimates that the cumulative capital spending on physical assets for the net-zero transition, such as technology, infrastructure, and natural resources, would need to increase by $3.5 trillion annually through 2050. This investment would bring growth opportunities, as decarbonization creates efficiencies and opens markets for low-emissions products and services.

  6. The promise of nature-based solutions: Improving biodiversity and lowering emissions. Discussions focused on the role of natural climate solutions (NCS) — conservation, restoration, and land-management actions that increase carbon storage and avoid greenhouse-gas emissions — to help address the converging crises of climate change and nature loss. A recent analysis by the World Economic Forum and McKinsey suggests that natural climate solutions could provide up to one-third of the emissions reduction needed to achieve a 1.5-degree pathway — at a lower cost than other methods of emissions abatement — while also stemming the loss of nature.

  7. The ecosystem mindset: Collaborating to move faster and achieve more. We saw a great openness among businesses to collaborate in new ways across the value chain to solve sustainability challenges. Indeed, we are seeing new forms of collaboration among the private, public, and philanthropic communities. For example, the US, Japan, and other nations finalized a $20 billion climate finance deal — a collaboration among countries and across the public and private sectors — to help Indonesia move away from coal.

  8. The push for parity: Climate adaptation and a just transition. On average, lower-income countries are more likely to be exposed to certain climate hazards compared with many upper-income countries, primarily due to their geographical location but also to the nature of their economies. Our discussions with business leaders focused on ways that nonstate actors can help build resilience and create a more just transition. For instance, insurance companies could lower the reliance on public money to recover from climate events by offering insurance products for those that make climate resilient investments. Civil-engineering companies can participate in innovative public-private partnerships to accelerate infrastructure projects. And companies can invest in building resilience throughout their supply chains. Accelerating these types of innovations, and scaling solutions that work quickly, could help us build resilience ahead of the most severe climate hazards.

Leaders are already looking ahead to COP28, which will be hosted by the UAE and take place in Dubai next year. We expect to see a continuation of the shift from commitments to actions, as organizations make progress on balancing net-zero targets with long-term energy resilience and ensuring a secure, affordable, and clean transition. We anticipate more commitments from both corporates, countries, and coalitions around the power of the “and:” creating energy resilience and accelerating the net-zero transition.

Photo by:   Marina Cigarini

You May Like

Most popular

Newsletter