SixactionareasforspeedingupyouremissionreductionplansAcceleratingdecarbonizationTHEBIGistheemissionreductionby2030targetedbythebiggestpubliccompanies→P.620%reductioningreenhousegasemissionscomparedto2019isneededby2030tomeettheParistarget→P.443%istheshareoflargepubliccompaniestargetinga50%emissionreductionby2030→P.615%Coverillustration:MathisBurmeister/2agenten1–PAGE4Thecorporateworldhasbeguntakingactiononclimatechange.Butcurrenttargetsforreducingemissionsshowalackofambition.2–PAGE7Whatisslowingcompaniesdown?Hurdlesandchallengesforcorporateemissionreductionplans.3–PAGE15Awiderangeoftoolsandsolutionsareavailableforcompanies.Sixactionareasforacceleratingemissionreductionplans.PAGE26ConclusionContents3AcceleratingdecarbonizationThink:ActTHEWORLDISFACINGASTARKREALITY.Ifwecontinuealongourcurrenttrajectory,wewillsingularlyfailtomeetthegoalsetbytheParisAgreementoflimitingglobalwarmingto1.5°Ccomparedtopre-industriallevels.Continuingwithbusinessasusualwillleadtoanincreaseof2.6°Cbytheendofthecentury.Evenimplementingthestrategiesthatgovernmentshavealreadyannouncedwillonlyhelpslightly,cuttingthelevelofincreasetobetween1.8°Cand2.4°C.Clearly,currentgovernmenttargetsandtheexistinglevelofregulationareinsufficient.AccordingtotheSixthAssessmentReportoftheIntergovernmentalPanelonClimateChange(IPCC),meetingtheParistargetrequiresa43percentreductioningreenhousegasemissionsby2030andan84percentreductionby2040comparedto2019levels.WhatweactuallyseeisthatglobalgreenhousegasemissionsrecoveredquicklyfromtheCOVID-19pandemicandnowalreadyexceedtheir2019levels.Withthenumberofextremeweathereventsincreasing,sealevelsrisingandwildfiresbecomingincreasinglycommonplace,politicianswilllikelyimposestricterregulation–whichwillhaveamajorimpactoncompaniesandtheirsupplychains.Theroleofcompaniesinmitigatingclimatechangeisindisputable.TheCO2emissionsoflargeindustrialconglomeratesareinsomecasescomparabletothoseofentirecountries.Forexample,oneoftheworld'slargestchemicalscompaniesgenerated17milliontonsofCO2in2020,equivalenttothecarbonfootprintofCroatia.Similarly,theworld'sleadingsteelproducersemittedalmost150milliontonsofCO2in2020–morethanthePhilippines'136milliontons,forapopulationofmorethan100millionpeople.Howaregovernmentsreacting?TheEuropeanUnionhasalreadyadoptedaCorporateSustainabilityReportingDirective(CSRD),detailsofwhichitwillfinalizebytheendof2022.TheUnitedStatesSecuritiesExchangeCommission(SEC)hasalsopublishedaproposedrulemakingpackageatfederalleveldetailingclimate-relateddisclosures.Atastatelevel,CaliforniaisdiscussingtheadoptionoftheClimateCorporateAccountabilityAct,whichwouldrequirecertaincompaniestoreporttheirdirectandindirectgreenhousegasemissionsannually.AddingtothepressureoncompanieswillbeincreasesinthepriceofCO2overthecomingdecades.ThepriceisexpectedtorisefrombelowUSD100/tCO2etodaytouptoUSD200/tCO2eindevelopedeconomiesandsomedevelopingcountries.Moreover,theEuropeanUnion'sCarbonBorderAdjustmentMechanism,expectedtobeenforcedby2026,willimposeacarbontariffoncarbon-intensiveproductsimportedbytheEuropeanUnion,forcingproducersfrom1–Thecorporateworldhasbeguntakingactiononclimatechange.Butcurrenttargetsforreducingemissionsshowalackofambition.4Think:ActAcceleratingdecarbonizationotherregionstoalignwithEUstandardsorincurhighercosts.TwosimilarinitiativesintheUnitedStatesaretheCaliforniaCap-and-TradeProgramandtheRegionalGreenhouseGasInitiative(RGGI),covering11northernstates.Companiesfacefurtherpressurefromstakeholders,suchasemployeesandcustomers,toreduceharmfulemissions.Climateactionincreasinglyplaysaroleinrecruitingandretainingstaff.Customers,too,aremoreandmoreawareoftheimpactthatbusinesseshaveontheenvironment–andexpectthemtodosomethingaboutit.Ontopofallofthis,therecentpoliticalturmoilsparkedbytheRussianinvasionofUkraineisputtingenergysecurityhighoncorporateleaders'agendas.Achievingenergysecurityandchangingcurrentsupplyarrangementsisclearlyapriority–however,itcouldrepresentathreattodecarbonizationplans.Instead,webelievethatthetwocangohandinhand:Thedesiretobecomemoreenergyindependentcouldspeeduptheshifttonewtechnologies,low-carbonelectricityandgases,therebydrivingdecarbonization.Thelimitedavailabilityoffossilfuelsandhighvolatilityoftheirpricesmayfurtherdrivethisshifttozero-emissionenergysourcesbybothgovernmentsandcompanies.COMPANIESAREBEGINNINGTOTAKEACTION,BUTTHEREISSTILLAWAYTOGOAspressureoncompaniesgrows,manybusinesseshavetakeninitialstepsonclimateaction,settingthemselvesemissionreductiontargets.Around58percentofthe4,700largestlistedcompaniesinmajoreconomiesreportingtheirgreenhousegasemissionshavealreadydoneso–althoughaslightlysmallerpercentagehavesetthemselvesbothaquantifiedemissionreductiontargetandatargethorizonforachievingit.Thetrendispositive,however,withtheshareofthebiggestCO2emitterssettingclimatetargetsgrowingbyaround19percentbetweenJanuaryandDecember2021.Companiessettingthemselvesclimatetargetsarealsodoingsoinanincreasinglyprofessionalmanner.Some3,250companieshavesigneduptotheScienceBasedTargetsinitiative(SBTi),ofwhich46percenthavehadtheirtargetsvalidatedbytheorganization,therebyavoidingaccusationsofgreenwashing.Manybusinessesarealsoengagedindialoguewithindustrypeersandpolicymakersoverclimateaction.TheirpresenceintheGreenandBlueZonesat26thConferenceoftheParties(COP)wasnoticeable,forinstance.IncreasingnumbersofcompaniesarealsojoiningtheRaceToZerocampaignledbytheUnitedNationsFrameworkConventiononClimateChange(UNFCCC),underwhichtheypledgetohalvetheirCO2emissionsby2030andreachnetzeroby2050atthelatest.ADespitetheseactions,thetargetscurrentlysetbycorporatesareinsufficienttomeettheshort-termemissionreductionneeded.BasedonfiguresfromNetZeroTracker,ThomsonReutersandTheClimateAction100+NetZeroCompanyBenchmark,onlyaroundtento15percentoflargecorporateshavesetthemselvesatargetofreducingemissionsby50percentby2030.Whatismore,thesumofthetargetssetbythebiggestpubliccompaniesinmajoreconomieswillleadtoanestimateddecreaseinthesecorporates'emissionsofjust20percentby2030,accordingtoThomsonReuters.Giventhatglobalgreenhousegasemissionsneedtofallby43percentby2030inordertoreachtheParistarget,itisevidentthatcompanieshavenotyetgraspedtheorderofmagnitudeoftheproblem.Evenifcompaniesweretouniversallysetthemselvessufficientlyambitioustargetsforreducingharmfulemissions,anumberofchallengeswouldremainintheareaofimplementation.Inthefollowingchapterweturnourattentiontothesehurdlesandtrytofigureoutwhy,formany,theracetonetzeroisonlyjustbeginning.Thetargetscurrentlysetbycorporatesareinsufficienttomeettheshort-termemissionreductionneeded.5AcceleratingdecarbonizationThink:ActNote:Basedonthe4,700listedcompanieswiththebiggestmarketcapitalizationinthemajoreconomies(ThomsonReuters),the166largestCO2emitters(ClimateAction100+),andthe2,000largestpubliclytradedcompaniesintheworldbyrevenue(NetZerotracker);allfiguresapproximateSource:ThomsonReuters;ClimateAction100+,NetZeroCompanyBenchmark;NetZerotracker;RolandBergerACompanies'currenttargetsfallshortSHAREOFCOMPANIESSETTINGEMISSIONREDUCTIONTARGETS50%ofthelargestcompanieshavealreadysetdecarbonizationtargets80%ofthosecompaniessettargetsfor2030Companies'targetsParisAgreementtarget15%setatargetof50%emissionreductionby203020302020Sumofthetargetssetbycompanieswillleadtoadecreaseinemissionsofjust20%by2030–whereastheParisAgreementtargetrequiresareductionof43%by20306Think:ActAcceleratingdecarbonizationTOMEETTHEPARISTARGET,companiesneedtourgentlyspeeduptheircarbonreductionplans.Whattheydointhenextfiveyearswillbecritical.Thetechnologicalchallengesthattheyfacevaryfromindustrytoindustry.However,somehurdlesarecommontoallstakeholders,fromdealingwithlimitedavailabilityoflow-carbonenergytoensuringacorporateculturefocusedonsustainability.Wediscusssomeoftheseuniversalchallengesbelow.LIMITEDAVAILABILITYOFLOW-CARBONENERGYCompaniesrelyonenergytoruntheiroperations,whetheritistopowerengines,generateheatortransformmaterials.Mostoftheenergytheyusetodayisoffossiloriginwithahighcarbonfootprint.Companiescanaccesslow-carbonenergyeitherthroughelectrificationwithlow-carbonelectricity(wind,solar,hydro-electricornuclearpower)orbyswitchingtolow-carbongases(suchasbiofuelsorhydrogen).However,availabilityoflow-carbonenergyislimitedanddiffersacrossgeographies.AccordingtotheInternationalEnergyAgency(IEA),only17percentoftheworld'stotalenergywaslow-carbonin2020.Moreover,globaldemandforlow-carbonenergyisexpectedtoincrease,puttingevengreaterpressureonlow-carbonsources.Thus,demandforelectricityisforecasttogrowby27percentbetween2020and2030inanet-zeroscenario,drivenbytheelectrificationofindustrialprocesses,heatingsystemsandmobility/transportation.Thiswouldrequireanunprecedentedmobilizationofindustrystakeholdersandmassiveinvestment:Installedcapacityforrenewableenergywouldneedtoquadrupleinordertosticktothe1.5°Ctrajectory(IRENA).Intotal,annualinvestmentinelectricitygeneration,transmissionanddistributionwouldneedtobetwotofivetimeshigherthanpre-COVID-19levels,accordingtotheIPCCWG3reportClimateChange2022:MitigationofClimateChange.Thepotentialforgeneratingrenewableenergyisunevenlydistributedaroundtheworld.Putsimply,somecountrieshavemoresunandwindthanothers.Wheregeneratingrenewableenergyispossible,italsorequiresasignificantamountofland.Forexample,assumingthecompleteelectrificationofcurrentenergyconsumptioninGermany,nearly15,000km2oflandwouldbeneededforgenerationpurelybysolarfarms,oralmost26,000km2forwindfarms–morethantheentirelandmassofcountriessuchasSlovenia,forexample.Buildingzero-emissionenergyfacilitiescanalsotaketime,especiallyinthecaseofnuclearandlargehydroelectricplants.Inanet-zeroscenario,demandforbiofuelsandhydrogenwouldincreasesixfoldinthedecadefrom2020.Greatuncertaintyexistsregardingthepotentialramp-upofproductioncapacities,however.Some90percentofthebiofuelsconsumedin2050areexpectedtobeadvancedbiofuelsproducedfromnon-food-basedfeedstock(residuesofagriculturalproduction),comparedwithjustonepercenttoday.Today,thisbringswithittheriskofcompetitionwithfoodproduction.Foritspart,hydrogenisexpectedtoseedemandofaround210milliontonsby2030,upfrom2–Whatisslowingcompaniesdown?Hurdlesandchallengesforcorporateemissionreductionplans.7AcceleratingdecarbonizationThink:Act90milliontonsin2020.Thecurrentshareofgreenhydrogenisbelowonepercent.MANYCLEANTECHNOLOGIESAREAVAILABLEBUTHAVENOTACHIEVEDSCALEThelatestIPCCreporthighlightstheimportanceof"cleantech"inreducinggreenhousegasemissions.However,manyofthetechnologiesthatwillbeneededbetween2030and2070arenotyetcommerciallyavailable.DatafromtheIEAsuggeststhatoverone-thirdofcumulativeCO2emissionreductionsby2070willcomefromtechnologiesthatarecurrentlystillattheprototypeordemonstrationphase,whichwillnotbecomeavailableatscalewithoutmassivefurtherinvestmentinresearchanddevelopment.1BUntilthesecleantechnologiesreachsufficientscale,thecorporateworldwillperceivethemasrisky.Thissituationwillcontinueaslongascompaniesareunsurewhichtechnologywillbeimplementedinthefuturebytheirsuppliers,clientsandcompetitors–anduntiltheyseethatcustomersarepreparedtopayapremiumforthem.Inthecontextoflimitedregulationandanabsenceoftargetedsubsidies,companiestendtowaitforthebusinesscasetobeprovenpositivebeforeinitiatingaswitch,preferringtowaitforasingle,ready-to-usesolutiontoemerge.Greenhydrogenisagoodexample.Thenecessarytechnologyneedstobescaledupinordertoreachcommercialviability.Theramp-upofthehydrogenvaluechain,fromproductiontoenduse,includingtransportationanddistributioninfrastructure,willrequiremajorinvestment.Thus,globalCAPEXonhydrogenisexpectedtoreachacumulativetotalofEUR10trillionby2050,ofwhichEUR2.2trillionwillbeinEurope.Increasingthetotalinstalledcapacityofelectrolyzerswillbekeyforcommercialreadiness:Forspecificcomponentsofelectrolyzers,technologicalgainstranslateintofiveto18percentcost1FIEA,EnergyTechnologyPerspectives2020[https://www.iea.org/reports/energy-technology-perspectives-2020/clean-energy-innovation#abstract]26%Mature39%Earlyadoption18%Demonstration18%LargeprototypeSource:IEASustainableDevelopmentScenario(2070);RolandBergerBManytechnologiesarenotyetcommerciallyavailableCO2EMISSIONREDUCTIONSIN2070BYCURRENTLEVELOFMATURITYOFTECHNOLOGYNote:PercentagesrelatetoshareofallCO2emissionreductionsexpectedfromcleantechnologies8Think:ActAcceleratingdecarbonizationreductionsforeverydoublingofinstalledcapacity.Thismeansthatthecostforelectrolyzerswouldneedtocomedownconsiderablytoenablethewidespreadbuildoutofhydrogenproductioncapacities.Notably,greenhydrogenproductioncapacityisexpectedtogrowexponentiallyinthisdecade.Still,itwilltakeafewmoreyearsuntilmoreandlarger-scaleprojectsreachafinalinvestmentdecision,getbuiltandstartoperations.Fornow,developersstillstruggletosuccessfullyde-risktheirprojects(amongothersduetoregulatoryuncertainty),securefirmoff-takeagreementsandmitigateremainingtechnologyrisks.Asfirst-oftheir-kind-projectscomeonstream,thesectoratlargewillfollow.Forprojectstomultiply,sustainedpublicfundingsupportwillbeneeded.CThatgovernmentalsupportcanmakeamajordifferenceisevidentfromthefiguresforsolarphotovoltaic,solarthermalandwindpowergeneration.Thesetechnologieshavereachedsufficientscaletobeviablethankstolargeinvestmentsbycompaniesdrivenbysubsidies.Thus,generationcostshavefallensince2009byaround90percentforsolarphotovoltaicpowerand16percentforsolarthermalpower,supportedbygovernmentsubsidies.Thishasresultedinahighlevelofmaturityforthetechnologiesandtheestablishmentofalarge-scaleecosystem.Scalingupandrollingoutthenextgreentechnologieswillrequiremajorinvestment.TherequiredglobalCAPEXoncleantechandinfrastructuretolimittheincreaseinglobaltemperaturesto1.5°CgraduallyrisesfrombelowUSD1trillionin2019toalmostUSD2trillionayearinthe2020s,furtherincreasingtoalmostUSD3trillioninthe2030s.ThatmeansacumulativetotalofUSD56trillionby2050,includinginvestmentsinhydrogenandothercleantech,low-carbonpowergenerationandgridande-mobilityinfrastructure.2<1>15EstimatedgreenhydrogenproductioncapacityCumulativegovernmenttargetsGlobalneedsundertheIEA'sNetZeroEmissionsScenarioinordertostayona"Parispath"Source:IEA;RolandBergerCGreenhydrogenproductioncapacityisonanunprecedentedgrowthtrajectoryGLOBALELECTROLYZERBUILD-OUT[GW]2021202520302GoldmanSachs,Carbonomics:SecurityofSupplyandtheReturnofEnergyCapex,p.14,2022>110~210~8509AcceleratingdecarbonizationThink:ActSUPPLYCHAINSAREHIGHLYCOMPLEX–ANDALREADYUNDERSTRESSWhileScope1emissions(directemissionsfromsourcesownedorcontrolledbycompanies)andScope2emissions(indirectemissionsfromelectricity,heatorsteampurchasedbycompanies)arelargelywithinthecontrolofcompanies,Scope3emissions(indirectemissionsthatoccurincompanies'upstreamordownstreamvaluechain)aremoredifficulttocontrol.ReducingScope3emissionscanbechallengingduetothelengthandcomplexityofsupplychains,forexample,whichoftenspanvariouscountrieswithdifferingregulations.Companiescannotignorethemastheyrepresentanestimatedaverageof85percentofCO2emissions.3Nevertheless,manycompaniesdonotcalculateordisclosetheirScope3emissions–andevenfewersettargetsforthematpresent.Forlargecorporations,thetaskofcalculatingScope3emissionsiscomplicatedbythelargenumbersofTier-1supplierstheyuse.MultinationalautomotiveOEMs(originalequipmentmanufacturers)mayhaveasmanyas60,000suchsuppliers.But,infact,thisproblemaffectscompaniesofallsizes:TheaveragefiguresforaerospaceandautoOEMsisaround200to250Tier-1suppliersandupto15,000suppliersacrossalltiers.Materialinfluxmayalsobenon-linearalongthesupplychain,withstakeholdersinterveningatvariousstagesorrawmaterialsbeingsourcedbythefinalclientbuttransformedbyanumberofdifferentsuppliersbeforedelivery.Thesecomplexsupplychainstructureslimitproducttraceabilityandthetransparencyofthecarbonfootprint.Norisdatareliabilityacrossthesupplychainagiven.Itisnotuncommonfordifferentsupplierstoanswerthesamequestionabouttheircarbonfootprintinmanydifferentways,dependingonthedatatheythemselveshaveavailable.Moreover,thatdataisoftenincompleteoroutdated,andmaycoverdifferentscopesorusedifferentmethodologies.Withincreasedglobalizationandinternationaltrade,today'ssupplychainsoftencoveralargenumberofcountries.Eachcountrymayhavedifferentstandardswithregardtoenvironmentalandcarbonemissionstracking,reportinganddisclosing.Consequently,suppliersmayshowdifferentlevelsofmaturitywhenitcomestotrackingandreportinggreenhousegasemissions.Someproductsaresourcedfromsuppliersthatoperateinmultiplelocations,sometimesinjointventureswithlocalstakeholders,makingcarbonfootprinttraceabilityevenmorecomplex.TheRolandBergerClimateChangeCombatRadarprovidesmoredetailonthelevelsofregulation,carbonpricingandcarbontrackingindifferentgeographies.WithsupplychainsalreadyunderstressduetoCOVID-19,somecompaniesmightbehesitanttoaddanotherlevelofrequirementrelatedtodecarbonization.TakingactiononScope3emissionscanproveespeciallychallengingforcompanies.Thefurtherthesupplierfromthecustomers,themoredifficultforcompaniestopushforaction.Acompany'snegotiatingpowerorabilitytoforceasuppliertomakechangesisusuallyproportionaltoitsshareofthesupplier'ssales,butcanalsobelimitedbythesupplier'smaturityorabilitytoact.DBUSINESSMODELSFOCUSONPRODUCINGANDSELLINGMORECurrentbusinessmodelsarefocusedongrowingproductionandsales.Thisnecessarilyleadstoanincreaseinenergyconsumptionandgreenhousegasemissions.Adirectcorrelationexistsbetweenrevenueincreasesandenergyconsumption,with45percentoftotalgreenhousegasemissionsrelatingtogoodsproduction(includinglanduse).Inmanyindustries,competitiononpricehasledtodecreasingqualityandlifespanofproducts,drivingincreasesinproductionandthusCO2emissions.Forexample,theaveragelifetimeofmajorhouseholdappliancesinGermanyfellfrom14.1to13yearsbetween2004and2013.Long-lifeproductshavelowerCO2emissionswhentheentirevaluechainisconsidered,astheCO2emissionsgeneratedbytheproductionofaseconditemgreatlyexceedtheenergysavingsachievedbyincreasedefficiencyofnewproducts.Thecumulativeenergyexpenditureofawashingmachinewithaservicelifeoffiveyearsisapproximately40percenthigherthanthatofonewithaservicelifeof20years–adifferenceofaround1,100kgofCO2eovera20-yearperiod.Similarly,havingonelong-lifetelevisionsetoveraten-yearperiodcausesaround500kglessCO2eemissionsovertheperiodthanhavingtwoshort-lifesetsoneaftertheother,eachwithalifetimeof5.6years.4Itshouldalsoberememberedthatthelineareconomybusinessmodelespousedbymostcompaniesdoesnotcovertheproduct'sendoflife.Thisleadstosignificantvolumesofwasteandacontinuousincreaseinresourceconsumption.3DeutscheBankResearch,WhatareScope3emissionsandwhyaretheyimportant,20214Umweltbundesamt,EinflussderNutzungsdauervonProduktenaufihreUmweltwirkung:SchaffungeinerInformationsgrundlageundEntwicklungvonStrategiengegen"Obsoleszenz",201610Think:ActAcceleratingdecarbonizationSource:Reuters;SBTi;deskresearch;RolandBergerDScope3emissionsareparticularlychallengingSHAREOFCOMPANIESWITHSCOPE3COMMITMENTSBYTIER1Tier0–selectedautoOEMsfrom"AutomobileManufacturing"and"HeavyDutyTruckManufacturing"companiesinNAICSIndustryGroupcategorization;Tier1–autoelectronics;Tier2–autoparts;Tier3–selectedproductioncompaniesfromSBTisectors"AutomobilesandComponents"cross-referencedwithReuters"Industrials";Tier4–rawmaterials;Tier>4–selectedminingcompaniesfromEBTi"Mining"&Reuters"Materials"OEMTier0Decarbonizationpressure72%Tier163%RawmaterialextractionRawmaterialprocessingMaterialproductionPartsElectronicsModules/systemsTier239%Tier325%Tier447%...20%LowHighShareofcompaniesinsamplewithScope3commitments1TRANSPARENCY&CONTROLCustomersShareholders11AcceleratingdecarbonizationThink:ActTheresultislargevolumesofmunicipalsolidwastelandfilledandpotentiallyunsustainablelevelsofresourceuse.Thelatterisalreadyapressingissueasthestockofeasilyaccessibleresourcesdiminishes.TheIEAforecaststhatprimarydemandforcopperwillexceedglobalavailableproductionbyminesby2024,forexample.Whatismore,onlyaroundeightpercentoftheglobalresourcesusedre-entertheeconomyviarecycling.Thepressureoncompaniestochangetheirbusinessmodelswillstemfrombothgovernmentsandconsumers.Thus,theEUCommission'sEcodesignforSustainableProductsRegulation(ESPR)proposalof2022setsoutaframeworkforfutureecodesignrequirementsforallphysicalproductsintheEUmarket,rangingfromenergyefficiencytocarbonfootprintandrecyclability.Toensurecompetitiveness,companiesneedtobeproactive:CirculareconomybusinessmodelsreduceCO2emissionsandwastegeneration,aswellasopeningupnewareasforinnovationandcompetitiveadvantage.Butsuchmodelscanalsoleadtoacompleterethinkofthecompany'soperatingandbusinessmodels,requiringdeepandcomplextransformations.BUSINESSCULTUREFOCUSESONSHORT-TERMFINANCIALTARGETSToday'sbusinessesaregenerallyguidedbyfinancialtargetsandfinancialreporting,theirindicatorsanddashboardsfocusingonfinancialperformance.Fewcompaniesofficiallyformulatetheirpurposeortheirmidtolong-termvalues,integratingthemintotheirday-to-daybusiness.Asaresult,manytopmanagersdonothavesustainabilityissueshighontheiragenda.Thislackofprioritizationofclimateactioninfactmeansthatcompaniesaremissingoutonsomeimportantpotentialbenefits.Certaindecarbonizationleverscandirectlygeneratecostsavingsintheshortterm:InstallingsolarpanelscanreducebothScope2emissionsandenergyspending,forinstance.Climateactionandincreasingsustainabilityalsoensurecompetitivenessandcangenerateprofitsinthelongerterm.Manycompaniesstruggletoaligntheirpurpose(whetherexplicitlyformulatedornot),strategyandorganizationalsetup.Allocatingresourcestonewstrategicprioritiescanbechallenging.Whereanoverallpurposeormissionstatementislacking,employees–evenseniormanagers–cansufferfromalackoforientation.Notinfrequently,responsibilityforclimateactionanddrivingsustainabilityisassignedtoasingledepartment.Thiscanleadtomissedopportunitiesfordecarbonization,asmanyleversforreducingemissionsrelatetooperationsandaredifficulttoidentifyoractivatefromacentralizedposition.Itcanalsoresultinoperationalteamsviewingclimateactionasanexternalconstraint,ratherthananopportunity.Toavoidthis,itisadvisableforcompaniestolocatetheirdecision-makingonclimateactionclosetooperations,usingitasanopportunitytofosterinnovativethinking.Somecompanieshavesetupdedicatedenvironmentalfunctionsreportingtodepartmentssuchasmarketing.However,thisapproachtendstodilutetheenvironmentalfunction'smission,andsupportisoftenonlyforthcomingforenvironmentalactionthathasaclearmarketingimpact.Inothercases,environmentaltopicsareseenasanissueforthecorporatesocialresponsibility(CSR)function.Theproblemhereisthatsuchdepartmentstendtolackdecision-makingpowerandhavelimitedroomformaneuver,limitedcapacitytoimposechangeonotherdepartmentsandlimitedspaceforexperimentation.Occasionally,theCEOorBoarditselftakesondirectresponsibilityforclimateaction–oftenleadingtomicro-managementofmicro-indicatorsratherthanastrategicroadmapandindicators.Companiesarewelladvisedtolocatetheirdecision-makingonclimateactionclosetooperations,usingitasanopportunitytofosterinnovativethinking.12Think:ActAcceleratingdecarbonizationSource:WorldBank;I4CE;CarbonMarketWatch;TSVCMReport2021;RolandBergerECarbonoffsetsaresettoskyrocketESTIMATEDGLOBALVOLUME,PRICEANDMARKETSIZEFORCARBONOFFSETS,2019VS.2030[MTCO2,USDBN]1Allfiguresareroughestimatesanddependgreatlyonpolicy,regulationandtechnologicaladvancement.Thefocusisonprimarycredits(pricexvolumecalculation)andvision,dependentontheevolutionofthemarketstructureandgo-to-marketToachievepledgesandtargets,carbonoffsetvolumesandpricesareexpectedtogrowsignificantly…VOLUME(offsetdemand)[Mt]PRICE[USD/tCO2]GLOBALMARKETSIZE1[USDbn]…leadingtothedevelopmentofasizeablemarketwithinthisdecade201920301,000MtConservativecaseApprox.10countriesEUR1-10/tCaliforniacap&trade:USD21/tCanada:USD32/tEUETS:USD43/tSwitzerland:USD106/tSweden:USD119/tNorway:USD53/tFinland:USD58/tUPSIDEPOTENTIAL2,000MtBasecase1002,00010x20x7x33x2019201920302030USD20bnConservativecaseUSD20/tCO2ConservativecaseUSD100/tCO2BasecaseUPSIDEPOTENTIALUSD200bnBasecase0.3198.070x1GtxUSD20660x2GtxUSD10013AcceleratingdecarbonizationThink:ActOneofthereasonsgreenhousegasemissionshavenothistoricallybeenapriorityforcompaniesisthatlittledatawasavailableontheminthepast.Real-timedataonemissionsthatcouldbeusedformanagingtheday-to-daybusinessandoptimizingstrategicbusinessdecisionsdidnotexist,forexample.Whatwasabundantlyavailable,ontheotherhand,wasdataonsales,costs,financialperformanceandsoon.Inevitably,thesethenbecamethetopicsthatmonopolizedmanagers'attention.Withtoday'sreportingpractices,combinedwithfactorssuchascarbontaxesandcarbonprices,greenhousegasemissionshavebecomemuchmorevisible.OFFSETTINGISNOTASOLUTIONManycompaniestodaystillrelymainlyonoffsettingwhenitcomestoclimateaction.Ofthemorethan800companieswithemissionreductiontargetsintheMSCINet-ZeroTrackerdatabase,justfivepercentdeclarethatoffsetsarenotpartoftheirclimateactionstrategy.Thereasonoffsettingissopopularisthatimplementingitisrelativelyeasy,asitjustmeansbuyingcertificatesratherthandevisingandimplementinganend-to-endcorporatedecarbonizationactionplan.Accordingly,offsetmarketsareforecasttogrowsignificantly,from100megatonsofCO2ein2019tobetweenoneandtwogigatonsin2030,anduptofivegigatonsin2050.Pricesareexpectedtofollowthesametrend,reachingbetweenUSD20andUSD100pertonofCO2ein2030.Thatmeansaseventyfoldincreaseinthevalueoftheoffsettingmarketby2030inaconservativecase,andanincreasetomorethan660timesitsprevioussizeinabasecase.EAconsensusisemerging,however,thatoffsettingcannotreplaceactionstoreduceemissions.TheSBTihastakenaclearstanceonthis:Companiesshouldbasetheirtargetsonemissionreductionsthroughdirectactionwithintheirownbusinessorvaluechains.Offsetsareonlyconsideredanoptionforcompanieswantingtofinanceadditionalemissionreductionsbeyondtheirscience-basedornet-zerotarget.Offsettingstillhasaroletoplay,butitisasecondaryone.Itcanfunctionasatransitionalmeasuretocompensateorneutralizeemissionsthatarestillbeingreleasedbycompaniesontrackfornetzero.Alternatively,companiesthathaveresidualemissionsafterimplementingallviablemeasurescanuseoffsettingtoachievenetzero.Tomakeoffsetsmoreeffective,marketstandardizationisrequired.Forexample,COP26setinitialcornerstonesfortheglobaltradingofcredits,asawaytosolvetheissueofdouble-countingofemissions.Additionalstepsareneededinareassuchasadditionality(ensuringthecarbonreductionwouldnothavehappenedanyway,withouttheoffset),permanence(thereductionmustcontinuefortheentirecertificationperiodoftheoffset),absenceofleakage(implementinganoffsetpolicyinoneplaceshouldnotleadtoemissionsbeingshiftedelsewhere)andverification(alltheseareasshouldbecertifiedbyathirdparty).14Think:ActAcceleratingdecarbonizationenergyuse,takingintoaccountthecompany'sprofileandthecontextinwhichitoperates.True,thiscontextbecamemorecomplexforallcorporatesfollowingtheRussianinvasionofUkraine,whichhasmadesecurityoftheenergysupplyatoppriorityforfirms,especiallyinEurope.Yet,ratherthananadditionalhurdletodecarbonization,thiscrisisshouldbeviewedasanopportunityforacceleratingtheenergytransition.Moreoftenthannot,low-carbonenergycapacityislimitedonthemarket.Mostcompanies–energy-intensiveonesinparticular–relyonthedecarbonizationoftheenergysystemofthecountryinwhichtheyarelocated.Theoretically,optionssuchaselectrificationandtheuseoflow-carbonelectricity,switchingtobiofuelsormovingovertohydrogenmayexist,butaccessingthematthescaleneededinpracticeisoftenunfeasible.Companiescantakeanumberofactionstodaythatwillhaveanimpactontheirenergy-relatedemissionswhenitisneededthemost–overthenextfiveyears.Wegrouptheseactionsunderthreemainheadings:reduceconsumption,produceyourownlow-carbonelectricity,andswitchtolow-carbonelectricity.GINTHEPREVIOUSCHAPTERweexaminedsomeofthecommonhurdlesstandingincompanies'wayintheracetonetzero.Theseobstaclesarenotinsurmountable.Below,welookatsixkeyareaswherecompaniescanacttoacceleratedecarbonizationwithinthenextfiveyears–acriticaltimeframe,astheglobalcarbonbudgetcouldbeusedupinthenextfourtoeightyears.Again,differentstakeholdersworkingindifferentindustriesandregionswillfacedifferentchallenges.ThedegreetowhichtheymustfocusonScopes1,2or3differsaccordingly–asdothetoolsandsolutionsavailabletothem.F1ENERGYDECARBONIZATIONReduceenergyconsumptionandsecureaccesstocleanenergy(Scopes1&2)Companiesdifferwidelyintheirenergyprofiles,dependingontheirindustryandlocation.Largevariationsalsoexistbetweendifferentcompanieswithinthesamesector.Thisactionareainvolvesexploringlow-carbonalternativesfor3–Awiderangeoftoolsandsolutionsareavailableforcompanies.Sixactionareasforacceleratingemissionreductionplans.15AcceleratingdecarbonizationThink:ActFDifferentindustries,differentchallengesINDUSTRYFOCUSBYSCOPE–WITHPOTENTIALTOOLSANDAPPROACHESSource:RolandBergerUtilities41%57%2%Healthcare9%82%9%Financial11%54%35%Consumerstaples5%91%4%Consumerdiscretionary2%96%2%Materials25%70%5%Informationtechnology2%89%9%Industrial6%93%1%Communicationservices2%71%27%Energy7%92%1%Realestate1%97%2%ShareofScope1ShareofScope2ShareofScope3FOCUSONSCOPE1FOCUSONSCOPE3•EnergyDecarbonizer•Smartde-risking•SupplyChainDecarbonizer•Circulareconomybusinessmodel•Productdesignandmaterialmixadaptation•Digitaltoolforend-to-endemissionstrackingFOCUSONSCOPE2•EnergyDecarbonizer•Circulareconomybusinessmodel•Productdesignandmaterialmixadaptation16Think:ActAcceleratingdecarbonizationGReduce,produce,buyIDENTIFYINGSOLUTIONSFORNET-ZEROENERGYCONSUMPTIONSource:RolandBergerHowmuchCO2canIcutby...reducingthecarbonintensityofmyenergyconsumption?HowmuchCO2canIcutby...producingmyownemission-freeenergy?HowmuchCO2canIcutby...buyingemission-freeenergy?5Photovoltaics6Ownwindpark7Owndispatchableasset8Directgreenprocurement9GreenPPA10EnvironmentalAttributeCertificate(EAC)procurementABCWhatleversshouldIincludeinmyportfoliofornet-zeroenergyconsumption?CO21Increasedenergyefficiency2Redesigningprocess3Rethinkingproduct4De-investment17AcceleratingdecarbonizationThink:ActAChinesealuminumandtextilesmanufacturerAglobalhotelandresortsnetworkAleadingChineseprivateenterpriseoperatinginthealuminumandtextileindustries,withmorethan15productionsitesoverseasandapresenceinEurope,setouttodesignacarbonpeakandcarbonneutralstrategyfocusedonenergysupplydecarbonization.Basedontheirdetaileddecarbonizationstrategy,theydefinedvarioustasksforthedecarbonizationcampaignandthenprioritizedthem,withthefirststepstakenin2022.Thecompanycalculatedthatbymovingpartoftheirproductiontoareaswithbetteraccesstohydroelectricandwindpower,theycouldreduceCO2emissionsby40-50milliontCO2ayearasearlyas2025.Theynowexpecttoseeafurtherreductionof85-95milliontCO2ayearby2040thankstothedevelopmentofsolarandwindpowergenerationcapacity,optimizationandinnovationsinproductionprocesses,andproductportfoliooptimization.From2040theywillalsoemploycarboncapture,utilizationandstorage(CCUS)fortheremainingCO2emissionsofsevento14milliontCO2ayear.AlargeglobalhospitalitygroupsetitselftheaimofreducingitsScope1and2emissionsby45percentby2030.Withthisgoalinmindtheyfirstanalyzedtheircurrentstatusandambitionlevels,outlininganinitialhigh-leveldecarbonizationactionplan.Theythenbuiltaroadmapforreachingtheir2030emissionstargetofreducingCO2ebyapproximately0.25milliontonsayear.Thisroadmapwasbasedonthreemainareas:identifyingenergyconsumptionreductionoptions,assessingtheon-premisesolarenergygenerationpotentialandbusinesscase,andmappingthepotentialforpurchasingzero-emissionsenergy.Theycarriedoutanalysesatsitelevel,assessingeachsituationindetail,includingmappingthesiteequipment,evaluatinglocalphotovoltaicpotentialandanalyzingthelocallow-carbonenergymarket.Besidessignificantreductionofemissions,theroadmapidentifiedpotentialcostsavingsofclosetoEUR10millionayearandatotalofaroundEUR85millioncumulativeCAPEX.Allcriticalinformationfortheroadmapwasdisplayedonacentraldashboard.Tospeedupimplementationoftheroadmap,theygatheredadditionalinsightsandmobilizedtoolsandresources,includingdevelopingatrackingandreportingsystem,andinvolvingkeystakeholdersinupskillingandtraining.TheRolandBergerEnergyDecarbonizertoolboxisafive-stepapproachtoreducinganddecarbonizingenergyconsumption.Companiesfolloweachstepinturn:•Step1:Buildanenergyconsumptiondossier,assessingelectricityandotherenergyusagepersite•Step2:Buildanenergyconsumptionreductiondossier,identifyingmainenergyconsumptionreductionoptionsandmakingrecommendationsatbothageneralandsitelevel,takingintoaccounttechnologymaturity,localcontext,costsandotherlimitations•Step3:Buildalow-carbonelectricityproductiondossier,exploringoptionsforgeneratingcleanenergy(forexample,viasolarpanels,windfarms,geothermalinstallations),takingintoaccountthelocalregulatoryenvironmentandpotentialcostsandconsequencesofalloptions•Step4:Buildalow-carbonelectricitypurchasedossier,analyzinglocalregulationsandthemarketstructuretoidentifyreliablesuppliersoflow-carbonelectricity,takingintoaccountthelocalenvironmentandcosts•Step5:BuildadetailedpathwaybasedonthepreviousanalysesanddefinedatbothageneralandsitelevelCompaniesmayalsoconsiderengaginginecosystembuilding.Signalingofftakeatacertainpricehelpsde-riskinvestmentsinenergygenerationandproductioninfrastructureandsohelpsspeeduptheoverallprocess.Companiesthatbuyenergycanjoinconsortiaandbuildcaptivebusinesscasesacrossthevaluechainwithpartnersingenerationorproductionandstoragetojointlydevelopinvestmentprojects.Thisisespeciallynecessaryinthefieldofgreengases,wherelarge-scaleproductionprojectsareonlynowbeingdeveloped.CASESTUDY18Think:ActAcceleratingdecarbonization360°assessment2CLEANTECHDE-RISKINGAcceleratetheramp-upofcleantechwithsmartde-risking(Scopes1&2)Manyprocessesinthemanufacturingindustryrequirecleantechtoreducetheirenergy-relatedemissions.Often,however,suchtechnologiesfailtoreachthescalethatwouldmakethemcompetitiveintermsofpricing.Thesituationwithelectrolyzersforhydrogenproductionexemplifiesthisconundrum:Duetoregulatoryuncertainty,alackoffirmoff-takecommitments,remainingtechnologyrisksandimmaturesupplychains,hydrogenprojectdevelopersstillfacesubstantialchallenges.Asoftoday,projectscannotbesufficientlyde-riskedandthereforerealinvestmentdecisionsarefew.Yet,investmentsarerequiredinordertoincreasetheinstalledcapacityandenableimprovementsinefficiency,whichwouldthenbringdownthecostofelectrolyzers.Withtherightregulatoryframeworkandsustainedpublicfundinghowever,theindustry–bothprojectdevelopersandtechnologyplayers–cantakethenecessarystepstoscaleupthehydrogensector.Giventheurgencyofreducingemissions,itwouldbewrongforcompaniestowaitforcostreductionstooccuroraperfectcentralizedsupportmechanismtobedeployed.De-riskingovercomesthishurdlebysupportingprivateinvestmentwithcontributionsfromthepublicsector,untilsuchtimeasthetechnologyreachescommercialfeasibility.Theobjectiveofde-riskingistomakeaninvestmentcasebankable,forexamplebyguaranteeingsufficientrevenuesforapilotorbymakinganewtechnologyorapplicationeconomicallysustainable.ItinvolvesidentifyingandHDe-risking,Step1:360°projectassessmentEXAMINEPOTENTIALBARRIERSANDRISKSACROSS6CATEGORIESSource:RolandBergerREGULATIONMarketaccessforprivatestakeholdersPermittingandlicensingTaxationmodelFINANCING/INVESTMENTInvestmentsizeCostofcapitalTECHNOLOGYTechnologymaturityFacilitydesignRESOURCELandaccessSupplyofcomponentsandmaterialsMACROECONOMYLocalcurrencyvolatilityInflationuncertaintyPoliticalandgeopoliticalsituationOFFTAKEMarketuncertaintyOfftakepriceCounterparty(client)risk19AcceleratingdecarbonizationThink:Actexploringsupportmechanismsfromvarioussources,whicharethencombinedtoformatailoredsolutionfortheprojectinquestion,takingintoaccountthebusinesscase,regionandassociatedrisks.TheRolandBergerde-riskingapproachconsistsoffoursteps:•Step1:Conducta360-degreeprojectassessmentacrosskeyriskcategories:macroeconomic,regulatory,technological,resource,financingandofftake.Thishelpsidentifykeyproject-specificrisksandhurdles•Step2:Drawupalonglistofpotentialde-riskinginstruments.Thelistshouldincludesupportmeasuresdrawnfromsimilarprojectsinthepast,plusinnovativesolutionstailoredtotheproject.Wealsorecommendmappingoptionsfortappingintofinancing.Forexample,theEuropeanUnionhasallocatedmorethanEUR0.6billiontofightingclimatechangeintheperiodto2027,andtheUnitedStateshasallocatedUSD45billionforthefiscalyear2023•Step3:Evaluatealistofde-riskinginstrumentsbasedonfourcriteria:riskmitigation,feasibility,attractivenessforprivatestakeholders,andattractivenessforpublicstakeholders.Themosteffectiveinstrumentsshouldbecombinedinasolutiontailoredtotheproject•Step4:Implementatailoredsolutionbyengagingwithrelevantpublic-sectorstakeholdersandecosystempartners.Todoso,weadvisecompaniestofocustheireffortsonmakingclearthebenefitsofthedemonstrationprojectsfortheentireecosystemSmartde-riskingcansubstantiallyimprovethefeasibilityofcleantechlighthouseprojectsandbringthemintooperationoverthecomingfiveyears.Companiesdonotneedtowaituntilcostsfall–theycantakeactionnowandhaveanimpactintheshortterm.Suchde-riskingmeasureshavealastingeffect,too,progressivelycreatingconnectionsbetweenmechanismsandstakeholders,streamliningprojectdevelopmentprocessesandspeedinguptheecosystemdevelopment.HAmajorsteelproducerOneoftheworld'sbiggeststeelproducers–amajorindustrialemitterofCO2–wishedtoassesspotentialpathwaystoclimate-neutralsteelproduction.Thecompanyconductedacomprehensiveanalysisoftwoapproaches:EquipconventionalblastfurnaceswithCCUSpriortousingdirectreducediron(DRI)technology,ortakeadirect-to-DRIroute.Thetechnical,economicandregulatoryimplicationsofbothpathwayswerestudiedindetail,asneithersolutionhadpreviouslybeenwidelyappliedinacommercialcontext.However,bothwereconsideredcrucialforfuturedecarbonizationeffortsandrequiredbroadstakeholdercooperationforde-risking.Afteranin-depthassessment,whichincludedevaluatingfeasibility,suppliermappingandpublic-opiniontesting,thecompanyselectedthedirect-to-DRIroute.Akeyfactorintheirdecisionwasthatthissolutionofferedarapidreductionofemissions(includingnon-greenhousegasemissions)byswitchingtonaturalgas,andfulldecarbonizationpotentialoncethesupplyofgreenhydrogenwassecured.Inaddition,DRItechnologyisflexibleandcouldbeintegratedintoexistingsteelmills,whilemaintainingthehighqualityofthesteel.Thecompanyshareditspreliminaryfindingswithlocalauthoritiesasakeyinputfordebatebythegovernment,andsecuredthesupportoflocalauthoritiesandcommunities.Thefeasibilityassessmentshowedthatcooperationwithabroadsetofstakeholders,includinggovernmentalbodies,wasrequiredtobringtheprojecttolifeduetoitslevelofcomplexityanduncertainty.Keyenablersfromthegovernmentincludeddevelopingthesupportinginfrastructure,creatingtherightmarketconditions,speedingupthepermittingprocessandintroducingstimulusmeasures.De-riskingmeasuresincludedidentifyingfundingmechanismsonanationalandEuropeanlevel,inadditiontoestablishingclarityonthecurrentregulatorylandscape.CASESTUDY20Think:ActAcceleratingdecarbonization3SUPPLYCHAINENGAGEMENTReducepurchasedemissionsbyidentifyingcriticalsuppliersandengagingwiththeminatargetedmanner(Scope3)Companies"import"alargepartoftheiremissionsthroughthepurchaseofintermediateproductsand"export"emissionsthroughtheuseoffinalproductsbyconsumers.Thismeansthattheycannotachievenetzerowithoutensuringthedecarbonizationoftheirsuppliersandofftakers:Corporatedecarbonizationmustinvolvethesupplychain.ForOEMs,inparticular,Scope3emissionsaccountforthelargestshareoftheiremissions–usuallybetween90and99percentinthecaseofautomotiveandmachineryOEMs.ThisisdrivenmostlybyuseoftheproductssoldbytheOEMs,whichcanbetackledviaproductdesignandcircularity(see#4below).Atthesametime,upto40percentofthetotalemissionsareduetogoodsandservicesboughtbyOEMs.Clearly,workingwithsupplierstoreduceemissionsisamatterofurgencyforOEMs.Asdiscussedabove,supplychainsareincreasinglycomplex,involvinglargenumbersofsuppliers.Theyshowlimitedcorrelationbetweencomponentcriticalityfromabusinesspointofview,componentcriticalityfromaclimatestrategypointofview,andthematurityofthesuppliers.TheRolandBergerSupplyChainDecarbonizerisatoolboxthatcanhelpcompaniesreducetheirupstreamScope3emissions.Creatingaroadmapforimmediateactionswillhelpachievetangibleresultswithinthecriticaltimeframeofthenextfiveyears,puttingcompaniesaheadofthecompetitionintermsoftheircarbonfootprint.Thetoolboxcomprisesfoursteps:•Step1:Analyzesuppliers'profiles,emissiondriversandlevers.Thisincludessegmentingandprioritizingsuppliersonthebasisoftheirimpactonemissions,analyzingemissiondriversforkeysuppliers,anddevelopingadossierondecarbonizationlevers,includingtechnologyandmaterialalternatives•Step2:Defineanambitionlevel,targetsandasupplierdecarbonizationcurve.SuppliersshouldbematchedwithdecarbonizationleversfromStep1andemissiontargetsderivedonthisbasis.ItisalsoadvisabletoidentifyoptionsforswitchingtomoreambitiousormaturesuppliersISupplyChainDecarbonizer,Step3:EngagewithsuppliersADJUSTSTRATEGYINLINEWITHSUPPLIERIMPACTANDMATURITYSource:RolandBergerPOTENTIALSTRATEGIES123PeerlearningandpartnershipJointlyestablishacollaborativeplatformforsustainabilityintheindustryCollaborateandeducateRunsupplierconferences/workshopstoengagewithsupplierbaseandsharebestpracticesEmployatrain-the-trainerapproachtoeducatesupplychaincommunityonsystemsandtoolsInformanddemandSimplyissuesuppliernotifications/lettersstatingthattheyshouldcomplywithsettargetstosupportsupplychainsustainabilityprioritiesRenegotiatesuppliers'contractualcommitments(volume,contractduration)SUPPLIERSEGMENTATIONPotentialimpactonthetargethighhighlowDegreeofsuppliermaturityonclimateactionCOMMODITIESCollaborateandeducate2Informanddemand3Peerlearningandpartnership121AcceleratingdecarbonizationThink:Act•Step3:Engageandalignwithsupplierstobuildcommitment.Inthisstepthecompanydiscussesandvalidatestheidentifiedemissionreductiontargetswithtopsuppliers,andprovidesthemwithatoolboxfordecarbonization.Othersupplierscanbeengagedwithviawebinarsorworkshops,providingtrainingoncuttingemissionsandinformingthemabouttargetsandreportingmechanisms•Step4:Drawupandimplementaprocurementactionplan.Thisshouldincludeareviewedhandbookforsuppliermanagement.Suppliercommitmentcanbeenforcedviacontracts,andongoingsupportprovidedManufacturers'approachestoengagingwithsuppliers(Step3)shoulddependonhowcriticalthesupplierinquestionisinthesupplychain,andhowambitiousthesupplieriswithregardtoclimateaction.Forimportantsupplierswithlowclimateactionambitions,a"collaborateandeducate"approachisneeded,aimedatimprovingthesupplier'sclimateactionperformance.Fornon-criticalsupplierswithlowclimateactionambitions,theapproachshouldbemoredirect:Themanufacturercanaskthesuppliertocomplywithtargets,orrenegotiatetheircontracts.Manufacturerscansupportsupplierswithhighclimateactionambitionsbyestablishingacollaborativeplatform.Iftheengagementwithexistingsuppliersisineffective,manufacturerscanalsolookforalternativesupplierswithmoreefficientproductionprocessesorlocatedinacountrywithbetteraccesstolow-carbonenergy,orsimplyclosertothemanufacturer.IAmajorfast-movingconsumergoodscompanyAmajorfast-movingconsumergoods(FMCG)companywishedtoidentifyrelevantpartnersandalternativesupplierstohelpdecarbonizetheirroadfreightlogisticsinEurope.Basedonacountry-by-countryreviewofinfrastructureandacomparisonofdifferenttechnologyoptions,thecompanydrewupfourdifferentscenarios.Thecostsforeachscenariowerecomparedtoafull-fledgedtotalcostofownership(TCO)model,includingfinancing,depreciation,fuel,andmarginsfordifferentusecases.Havingchosenoneoftheoptions,thecompanythendrewupadetailedroadmapfortherollout,comprisingthreephases:aproofofconceptandecosystembuilding,aprocurementramp-upandscalingofprojects,andalarge-scalerolloutaimedatachievinga90-percentreductionincarbonemissionsby2030.Forthefirstofthesephases,fourpossiblepartnershipmodelsweredeveloped:(i)outsourcing,whichwouldallowcurrentprojectstocontinuewithslightadjustmentsbutlimitcontrolbythecompany;(ii)ecosystemdevelopment,whichwouldgivethecompanyanopportunitytoshapetheindustrybuthaveanimpactonhumanresources;(iii)assetownership,inwhichthecompanywouldbuyitsownvehicles,infrastructureorlow-carbonfuelsandthenleaseCASESTUDYthemouttooperators,givingthecompanyastrongsenseofcontrolbutdirectlyimpactingthebalancesheetandresourceallocation;and(iv)insourcing,inwhichthecompanywouldbecomealogisticsoperatoritself,eventotheextentofofferingitsservicestothirdparties–apotentialbusinessopportunitybutonethatinvolvesbuildinganentirelynewbusiness,withalltheassociatedrisks.AlargeaerospaceanddefenseOEMAmajoraerospaceanddefensemanufacturerranaprojecttodevelopasustainabilityroadmapfocusedonsupply-chaindecarbonization.Thecompanyemployedatwo-phaseapproach.First,theycarriedoutan"as-is"assessmentfocusedonsegmentingandprioritizingsupplierstoassesstheirimpactandmaturityintermsofESG.PrioritizedsuppliersreceivedatailoredengagementconceptwiththeobjectiveofjointlydefiningemissionreductiontargetsthatwerealignedwiththoseoftheOEM.TheOEMwasalsoinvolvedindevelopingastrategyandprocessestoachievethesetargets.AkeyimplementationmeasurefortheOEMwascontinuousengagementwithsuppliers,whilegraduallyintegratingclimateactionrequirementsintotheprocurementprocess.22Think:ActAcceleratingdecarbonization4PRODUCTDESIGNANDCIRCULARITYLimitproducts'carbonfootprintsbyrethinkingtheirdesignandmaterialmix(Scopes1,2&3)orleveragingcircularityDecarbonizingspecificinputsorcomponentscanbedifficultforsomecompanies.Instead,theymaydecidetorethinktheirproduct'sdesign–changingthematerialmixtoincludematerialswithsimilarfeaturesbutasmallercarbonfootprint,adjustingtheproduct'sdimensions(especiallyitsweight),orextendingthecomponentlifecyclethroughreuseandrecycling.Old-fashionedbusinessmodelsthatfollowthe"sellmore"mantraareapotentialbrakeonboldinnovation.Switchingtoacirculareconomyoftenrequiresacompleterethinkofthecompany'sbusinessmodel,operationsandproductportfolio.Suchchangescannotbeimplementedinstantly,makingtheneedforactionurgent.Inordertobeabletoscaleandindustrializenewproductdesignswithinafewyears,companieswouldbewelladvisedtostartnow.Theyhavearangeofleversattheirdisposal:•Rethinkingproductdesign(seeabove):Introducerenewable,recycledorhighlyrecyclableinputsintoproductionprocesses,limitingwasteandrelatedpollution.Thiscanincluderecoveringresourcesfrompreviousproducts(askingcustomerstoreturnthemwhenused),substitutingcurrentcomponentswithrecycledcomponentscollectedbyanexternalpartner,orestablishingasymbioticrelationshipwithanothercompany(usingonecompany'swasteastheothercompany'sinputs)•Productsharing:Maximizetheuseofidleassetsacrossacommunity,whileprovidingaffordable,convenientaccesstohigher-qualityproductsandservices•Product-as-a-service:Shiftthefocusfromsalesvolumestoproductperformanceandlifetime.Thiscreatesanincentiveformanufacturerstomaximizeproductresilienceandrepairability•Productlifeextension:Designproductsforrepairability,upgradability,reusabilityandeaseofdisassembly(enablingeasyreconditioningandreselling).Thehigherpricesofsuchproductsareoffsetbyalmostguaranteedresales5ORGANIZATIONUnleashemployees'creativitywithacorporateculturefocusedonsustainability(Scopes1,2&3)Acceleratingclimateactionrequiresachangeincorporateculture.Thecompany'sdecision-makingprocessneedstobegroundedinapurposeandvisioninwhichsustainabilityandmakingthebusinessclimatechangeproofinthelongtermisanoverarchingtarget.Thecompany'sdecision-makingshouldgivenon-financialdimensionsasignificantlevelofpriority.Alternatively,sustainabilitytargetscanbegivenafinancialimpactsothattheyarebetterintegratedintobusinesssteering.Atbest,decision-makingisdecentralizedsothatsustainabilitypercolatesthroughtoday-to-daydecisionswithouttheneedforapprovalfromaspecialdepartment.Transformingcorporatecultureinvolvesmorethanintroducingnewindicatorsandreportingprocesses–itinvolvesachangeofmindset.Thenewcultureshouldbebuiltaroundthewholeorganizationbeingengagedinapurposethatbalanceslong-termcompetitiveness,sustainabilityandperformancewithshort-termprofits.Werecommendthattopmanagementdevelopapurpose,visionandmissionthatreflectaholisticapproachtoenvironmental,socialandgovernance(ESG)factors,andliveoutthesevaluesintheirday-to-dayactivities.Thevisionandmissionshouldbetranslatedintoastrategy,includingtargetsformanagement.Ideally,thecompanydrawsupaclearroadmapwithkeymilestonesforeachofthetargetsandKPIs(keyperformanceindicators).Itthencommunicatesitsstrategytotheorganization,andmanagersallocatetheirtimeaccordingly.Transformingacompany'sculturerequiresadedicatedprocess,combiningmobilizingemployeestodesigninnovativeapproacheswithdefiningcentralizedstandardsandtargets.First,thetopmanagementshouldprovideguidanceandinput.Employeesneedtobeencouragedtoproposenewideasandinnovativeapproaches.Next,across-departmenttaskforcegatherstheproposedideascentrallytoensureeffortsarealignedwiththemaingoal.Theroleofthistaskforcedecreasesovertimeasemployeesareprogressivelyempoweredandthesustainabilityvisionandroadmapareintegratedintothecompany.Whenbuildinganewculture,itiscrucialthattheday-to-daybusinessisconsistentwiththecompany'sgoals.23AcceleratingdecarbonizationThink:ActFirmscanachievethisbyintegratingsustainabilityindicatorsintotheirperformanceassessmentsanddecision-makingprocesses(includingHRprocessessuchascompensationandpromotions).Employeesneedtobeclearthattakingclimateactionintoaccountintheirday-to-daydecisionswillhaveapositiveimpactontheircareers,andviceversa.Thiswillalsoboostemployees'willingnesstotryoutinnovativeideas.Anewculturealsorequiresadjustmentstoemployees'skillsandthetoolsthattheyuse.Staffatalllevelsneedaknowledgeofclimateaction:Topmanagersmustunderstandthechallengesandbewillingtodriveandrewardchange;departmentleadersneedtounderstandtheirmissionandidentifywaystotacklethechallenges;andlower-levelemployeesneedabroadunderstandingofclimatetopicsandspecificknowledgeofmattersaffectingtheirareaofworkdirectly.Allstaffshouldshowconvictionandawillingnesstotackleclimatechange–somethingthatcantaketimeforafirmtobuildinternally.Buildinganewcultureandadjustingemployees'skillsandtoolsleadstoasharpincreaseinacompany'sclimateactionpotential.Moreover,thequickeracompanyrefocusesitscorporateculture,themoreitwillbenefitfromthelastingeffectsoffosteringemployees'creativityinthefieldofclimateaction.AmajorNorthAmericanpensionfundAlargeNorthAmericanpensionfundconductedaprojecttobuildastrategicvisionfor2025.Toinspirethenewvision,thefirmconductedabenchmarkstudyandperformedananalysisofthemarketenvironmentandmacro-trends.Involvingemployeesinjointactionrequiresaspecialapproachtoensurebuy-inandapersonaldesiretocontributeonthepartofeveryoneintheorganization.Forthisreason,thecompanysetupanumberofworkinggroupswhosetaskitwastoshapestrategicinitiativessupportingthenewvision,whileatthesametimeensuringconstantstakeholderengagement.Theworkinggroupsjointlydevelopedeightstrategicinitiatives,motivatingemployeesonalllevelstosupportthecompany'sstrategicvisionfor2025.Inaddition,thefirmanalyzedandsubsequentlyadjusteditssustainabilityproceduresatbothBoardandoperationallevel.Forinstance,theBoard'sprioritiesanddashboardwerealignedwiththeoperationalroadmap.Thisenabledthecompanytoidentifyandstartaddressingpreviouslyhiddenissues,suchasthelimitedunderstandingandrecognitionofjointeffortsinreachingspecificobjectives,limitedvisibilityontheactivitiesofsubsidiaries,andnon-systematiccommunicationbetweensubsidiaries.CASESTUDYThesooneracompanyrefocusesitscorporateculture,themoreitwillbenefitfromemployees'creativityinthefieldofclimateaction.24Think:ActAcceleratingdecarbonization6CLIMATEACTIONDIGITALIZATIONTrackprogressandoptimizethedecarbonizationpathwayusingdigitaltoolsandartificialintelligence(Scopes1,2&3)Tobuildaneffectiveemissionreductionplan,companiesnotonlyneedtounderstandwhatthesourcesoftheiremissionsare,theyalsoneedtotrackprogressontargetsandoptimizetheemissionreductionplanaccordingly.Todothis,theymustcollectdataandtrackcomponentsalongtheentireproductcycle,analyzingemissionsrelatedtotheirownproduction(Scopes1and2)andestablishingtheprecisecarbonfootprintofanypurchasedgoodsandservices(Scope3).Theyalsoneedtounderstandwhatleverstheyhaveattheirdisposal,andwhattheirimpactcouldbeintermsofcostsandCO2reduction.Understandingcurrentemissions,modelingfutureemissionsandforecastingtheimpactofreductionleversallrelyonaccesstoreliable,end-to-enddata.Often,however,problemsarisewithregardtodataavailabilityandquality–particularlywherethedatainquestion,beitinternalorexternal,wasnotpreviouslycollected.Itisadvisableforcompaniestoensurethecompatibilityofdifferentsystemsusedforstoringdata,bothinternallyandexternally:Often,suchsystemswerenotoriginallydesignedtoworkeffectivelytogether.Ausefulapproachforcompaniesistobuildaclimateactiondigitalizationstrategy.Thisinvolvescarefullyevaluatingthevarioustoolsthancanbeintegratedwithexistingsystemstoenablefootprinting,actiontracking,forecasting,optimizationandsupplierengagement.Suchtoolsareincreasinglyavailableonthemarket,althoughmanyremaininthedevelopmentorprototypephase.Achievinggreatertransparencyovertheiremissionprofileandtheeffectivenessofreductionlevershelpscompaniesspeeduptheirclimateactionplansandshouldbeprioritizedintheshortterm.AleadinginternationalconsumergoodsproducerAleadinginternationalproducerofconsumergoodswishedtoestablishprocessesandITtoolsforproductlifecycleassessmentandenvironmentalfootprintreduction.Itdrewupalistof16differentimpactcategories–fromgreenhousegasemissionsandwaterusetoimpactonbiodiversity.Theprojectbeganwithananalysisofthevariousenvironmentallifecycleassessmentmethodologiesalongthewholevaluechainavailableonthemarket,includingtheirtechnicalrequirements.Thetoolsandprocessescurrentlyinusebythecompanywerethenscrutinizedandagapanalysisperformed.Abenchmarkingexerciseandanextensivetoolscreeningprocessidentifiedsolutionsthatenabledthecompanytobothtracktheenvironmentalfootprintandmodeltheimpactofreductionlevers.Finally,appropriateITarchitectureandprocessesweredeveloped.CASESTUDYTheonusisoncompaniestotakeurgentactiontospeeduptheiremissionreductionplans.Manybusinesseshavestartedoutontheirclimateactionjourney,buttheircurrenttargetsareinsufficient.Whattheydointhenextfiveyearswillbecrucialbothfortheplanetandfortheirowncompetitiveness.It'stimeforcompaniestotakedecarbonizationtothenextlevel.Conclusion26Think:ActAcceleratingdecarbonizationAUTHORSYVONNERUFSeniorPartner,MemberofSupervisoryBoard+4969299246334yvonne.ruf@rolandberger.comDAVIDFRANSSeniorPartner+31207960621david.frans@rolandberger.comJANRABESeniorPartner+498992308126jan.rabe@rolandberger.comDARIAKOROLEVAPartner+498992308126daria.koroleva@rolandberger.comSIMONELSENProjectManager+4930399273591simon.elsen@rolandberger.comGREGORGEISLERProjectManager+498992308407gregor.geisler@rolandberger.comANTOINEVERVANDIERSeniorConsultant+33170928935antoine.vervandier@rolandberger.comUSTYMMYTSAKConsultant+4930399273528ustym.mytsak@rolandberger.comOKSANAPOLISHCHUKConsultant+4930399273334oksana.polishchuk@rolandberger.comWewelcomeyourquestions,commentsandsuggestionsWWW.ROLANDBERGER.COMCreditsandcopyrightThispublicationhasbeenpreparedforgeneralguidanceonly.Thereadershouldnotactaccordingtoanyinformationprovidedinthispublicationwithoutreceivingspecificprofessionaladvice.RolandBergerGmbHshallnotbeliableforanydamagesresultingfromanyuseoftheinformationcontainedinthepublication.©2022ROLANDBERGERGMBH.ALLRIGHTSRESERVED.September2022PUBLISHER:ROLANDBERGERGMBHSederanger180538MunichGermany+49899230-022_2078_TABROLANDBERGERistheonlymanagementconsultancyofEuropeanheritagewithastronginternationalfootprint.Asanindependentfirm,solelyownedbyourPartners,weoperate51officesinallmajormarkets.Our2700employeesofferauniquecombinationofananalyticalapproachandanempathicattitude.Drivenbyourvaluesofentrepreneurship,excellenceandempathy,weatRolandBergerareconvincedthattheworldneedsanewsustainableparadigmthattakestheentirevaluecycleintoaccount.Workingincross-competenceteamsacrossallrelevantindustriesandbusinessfunctions,weprovidethebestexpertisetomeettheprofoundchallengesoftodayandtomorrow.
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