Boston Consulting Group
Explained byBoston Consulting Group

Understand climate action as a source of sustainable competitive advantage

How your company can create climate advantage

To adjust to a net-zero future, it is essential to take advantage of climate-related opportunities, as transitioning entire energy economies to zero-carbon is a monumental, global transformation, with boundless business potential. These myriad opportunities can be categorized as follows:

Figure 2: Summary of climate opportunities.

Let’s explore these opportunities in more detail.

Market expansion: According to the NYU Stern Center for Sustainable Business, sustainable products accounted for roughly half of the market growth in consumer-packaged goods from 2013-2018, despite accounting for just 17% of the market – clearly out-pacing conventional products (1). Sustainable products can enable your company to take advantage of this growth by entering new markets, gaining market share, targeting new customer segments, and improving customer loyalty.

Pricing: According to BCG analysis, about 70% of consumers express a willingness to pay a 5% premium for sustainable goods, with 10% of consumers willing to pay 25% more (2). At the same time, a recent BCG survey revealed that, while customers often say they are concerned with purchasing sustainably, they rarely do, implying that your company’s products would have to provide clear benefits to customers to nudge them toward acting on their intentions and paying a premium for your sustainable products (3).

New revenue streams: Sustainability efforts can help unlock new business models that may enable your company to take advantage of new revenue streams. These new business models can also de-risk your products and services in the face of climate shocks by diversifying offerings. While this would likely entail changing operational and business models, taking advantage of the fast-growing sustainability-centric market will likely lead to more robust and higher revenues, future-proofing corporate health.

Employee productivity: A strong and clear purpose like sustainability often leads to stronger identification of employees with their employer and allows them to see themselves as part of something bigger, regardless of their role. This boosts morale and motivation. In fact, mission-driven companies with a clear purpose benefit from higher labor productivity and are twice as likely to have a high total shareholder return (4, 5).

Cost of operations: On average, reducing up to 50% of direct carbon emissions can come at a net-zero cost to businesses (6), p15. Cost premiums for sustainable alternatives are projected to decline over the coming years, with solar power having already reached cost parity in most major countries, and other renewable energy sources and sustainability approaches projected to reach parity in the coming years and decades (7). As technology progresses, more sustainability solutions are likely to reach parity or be even cheaper than current standard practices.

Design to value: Climate-friendly product designs often feature more efficient and sustainable materials, or use existing materials more efficiently and sustainably, potentially reducing associated production costs as well. Some companies are already finding that sustainable materials and approaches are or are becoming more cost-effective than their previous practices as they redesign their supply chains (8) p17.

Access to financing/cost of capital: Climate front-runners can benefit from lower cost of debt and superior access to preferred capital as green financial instruments (e.g., green bonds) gain in popularity. More institutional and retail investors, as well as corporations like Apple, Verizon, Pepsi, and Walmart, are increasing their investments in green markets (9) p17. These green instruments provide cheaper capital to entities for sustainability investments. For example, ELYSIS, a company dedicated to creating low-carbon aluminum, received $10 million from Apple’s green bond program by 2022 (10). In addition, organizations implementing environmental measures often benefit from grants & subsidies from governmental programs. For instance, Hyundai and LG benefitted from local, state-level, and federal subsidies and tax breaks when investing in an EV and battery plant in Georgia, USA (11).

Employee acquisition and retention: ESG-frontrunners are more attractive employers – particularly for younger professionals – and have higher retention rates than their peers. A December 2020 survey by BCG and The Network showed that around half of all employees see sustainability as a reason to switch from, or not choose, an employer (12) p13. As sustainability continues to be a priority for new hires, it will become increasingly important to create and follow through on climate initiatives to attract and retain talent.

Brand value and market valuation: Taking climate action can lead to improved brand awareness and purpose, as well as improved valuations from investors. The clarity of purpose provided by a strong climate ambition can aid in aligning public perception with your brand’s positive climate impact, creating good-will and brand value. Additionally, total shareholder returns for the top quartile of environmental performers were an average of three percentage points higher than peer companies, with climate leaders performing better than competitors in most sectors, including aviation, CPG, shipping, chemicals, and cement (13) p18.