At a Glance:
- A study published in October 2024 found that global economic growth outpaced decarbonisation efforts, with a mere 1% reduction in the emissions-to-GDP ratio, falling significantly short of the ~8% annual decline required to achieve net-zero emissions by 2050.
- Decarbonisation challenges include fossil fuel dependence, climate uncertainty, and the need to collaborate on costs and policy.
- Integrating carbon reduction goals into business strategy, aligning metrics and incentives, and funding R&D are ways to foster collective commitment to decarbonisation.
As global economic growth continues, the imperative to decarbonise operations has intensified. While recent years have seen progress, particularly in advanced economies, the overall pace of global decarbonisation remains insufficient. As reported in a 2024 , Fitch Ratings highlights this alarming trend; that is global CO2 emissions grew by 1.8% while GDP increased by 2.9%, resulting in a minimal 1% decline in the emissions-to-GDP ratio. This substantial gap between the current rate of decarbonisation and the ~8% annual reduction required to reach net zero by 2050 highlights the critical need for accelerated climate action.
Business leaders are increasingly aware of the need to decarbonise. Factors driving this include investor pressure, changing consumer preferences and evolving regulations. While the transition is challenging, successful companies are seizing it as a chance to grow.
The Decarbonisation Challenge
Industry leaders confront a multifaceted challenge in their pursuit of decarbonisation. In addition to these challenges, leaders also face the challenge of managing the transition to a low-carbon economy in a way that is just and equitable. This means ensuring that workers and communities are not left behind as the economy shifts away from fossil fuels.
Major obstacles when it comes to decarbonisation strategy include:
Lack of clarity on relevant climate scenarios and signposts:
Climate signposts are indicators such as government policies, corporate commitments, technological advancements, and carbon pricing trends that help predict future climate scenarios. Companies need to identify the relevant climate scenarios and signposts that indicate what’s coming next, especially given the expedited pace of policy and technology advances.
Aligning diverse interests when collaborating for decarbonisation:
Different partners may have different priorities, such as cost reduction, market share or environmental impact. Balancing these interests can be complex, particularly in resource-heavy industries like rare earths.
The electronics industry is highly dependent on rare earth minerals. Each tonne of rare earth mined produces 13 kg of dust, 9,600 to 12,000 mÂł of waste gas, 75 mÂł of wastewater and one tonne of radioactive waste. Rare earths are often mined, so smaller mining companies may lack the resources needed to implement sustainable mining practices.
Need to empower middle management to deliver on decarbonisation goals:
Top management and new recruits are often onboard with decarbonisation, but middle managers are the ones who must execute the strategy. Companies need to provide them with the tools and resources they need to succeed.
Concerns about greenwashing: Companies must ensure that their net zero commitments are credible, not just greenwashing. This means having regular interim targets, not using offset credits, committing to end fossil fuel usage, and outlining a socially and ecologically fair transition to net zero.
The high cost and immaturity of carbon capture technologies:
Capturing CO2 (CCS) from a gas stream is a major challenge, and current processes can be prohibitively expensive. For example, capturing CO2 from concentrated streams, like those in natural gas processing, can cost between USD $ 19 and $ 34 per tonne of CO2 captured. However, capturing from diluted streams, such as those found in coal-fired power plants, steel, and cement production, can be much more expensive, ranging from USD$ 36 to 107 per tonne of CO2 captured. Various factors, including the capture process, transportation, and storage location, influence the cost of CCS.
Leadership’s Role in Transformation
Recently, Climate Investment Funds (CIF), one of the world’s largest multilateral climate funds, will provide up to $1 billion for low-carbon technology innovation in sectors among the largest global emitters.
Business leaders can be proactive in identifying and capitalising on decarbonisation opportunities. The CIF’s investment is a testament to this, demonstrating how challenges can be turned into competitive advantages such as:
- Fostering collaborative partnerships to facilitate knowledge-sharing, spread the cost of new technologies, and foster a more coordinated approach to addressing decarbonisation challenges. This is significant, especially during a potential economic downturn.
- Engaging with policymakers to establish environmental standards, provide financial support for sustainable technologies, and promote responsible sourcing can create incentives for all stakeholders to prioritize environmental responsibility.
- Integrating decarbonisation into core strategy to ensure that sustainability strategies align profit with purpose. For instance, finance teams can incorporate carbon pricing into investment decisions by assessing environmental impact. This cross-functional approach integrates sustainability considerations into the business.
- Prioritising research and development of innovative solutions that enhance energy efficiency, utilize low-carbon fuels, and implement carbon capture technologies. Through initiatives like the Alliance for Industry Decarbonization (AFID), the International Renewable Energy Agency (IRENA) supports innovation in decarbonisation technologies across various sectors.
- Establishing robust data management systems to collect, track, and analyse this information to inform decision-making and monitor progress.
How could leaders drive net-zero goals?
- Quantify Greenhouse Gas (GHG) emissions :
Conduct a thorough GHG inventory to measure your company’s total emissions. Set a base year to track progress and establish reduction targets. - Set clear, science-based targets (SBTs) to guide:
These targets, aligned with the Paris Agreement, ensure that companies’ actions are consistent with the emissions reduction required to limit global warming to 1.5C. - Develop transition plans:
Create comprehensive transition or net-zero plans. These should outline specific decarbonisation initiatives to guide your company toward its climate goals. - Build internal capabilities and enhance leadership:
Organisations should invest in sustainability training for leaders and employees. Strong leadership is key to articulating a clear vision, setting ambitious goals, and empowering the workforce to contribute to decarbonisation efforts. - Nurture value chain partnerships:
Decarbonisation is a complex challenge that requires collaboration across the value chain. Companies should partner with suppliers, customers, and industry peers to share knowledge, reduce costs, and accelerate the adoption of sustainable solutions. - Adhere to local and international regulations and policies:
Carbon pricing, green technology subsidies, science-based targets, research, infrastructure and platforms can help decarbonise sectors. Businesses should commit to these targets and demonstrate flexibility to adapt to evolving regulations and technologies.Â
The Renoir ESG approach enables businesses to navigate the complexities of decarbonisation, offering bespoke solutions. Our expertise can facilitate collaborative partnerships and help your organisation become low-carbon.
By combining efforts, we can expedite this transition.Â
