McKinsey hosted its sixth annual Global Sustainability Summit in Chicago. The crowd was the largest and most senior we’ve seen, which is no surprise given sustainability is now on the top of every leader’s agenda. That’s why our summit focused on five critical themes: energy transition, future mobility, circular economy, sustainable investing, and sustainable agriculture.
We are at a unique moment in history. The next ten years are crucial to address climate risks that are already unavoidable and to avoid the most serious effects of climate change in the future. The path forward involves both micro and macro efforts, as climate risk and opportunity looks different for each locality, industry, and community. Small pilot projects can be scaled across cities or regions. At the same time, systemic change is necessary and must begin rolling within the next decade. While many projects are focused on carbon neutrality by 2050, we can’t let perfect be the enemy of good—although the threshold of “good” will continue to rise as time goes on, so efforts must begin now, if not yesterday.
We framed the summit’s conversations around the recognition that we are facing two tipping points: one is economic, and one is environmental. The economic tipping point consists of industry-specific transitions that are propelling decarbonization of entire sectors, where players in these industries are taking advantage of the quick pace of innovation to turn sustainability into a competitive advantage. And the environmental tipping point, of course, will determine whether our Earth remains stable—or not.
The granularity of climate risk
The longtail effects of climate change—more extreme summer temperatures on more days, more frequent severe storms, increasing fire risk brought on by drought—will have an impact on every corner of the modern economy, putting critical infrastructure at risk, undermining real estate values, disrupting crop patterns. First-order impact (such as hurricanes in Florida) will have significant ripple effects (such as crashing real-estate prices as people realize a 30-year mortgage in Miami is a poor investment). However, leaders are insufficiently aware of, and therefore underprepared for, these knock-on effects of climate change.
An objective understanding of climate risk is actually quite terrifying. During the summit, we were treated to gritty, impartial descriptions of what our planet will look like if we don’t take action. Even if we act, it could be “just enough to fail.” As a result, there’s great urgency to act swiftly and decisively by working significant (not just cosmetic) decarbonization and climate risk mitigation directly into our businesses’ core strategies.
The effects of climate change for the next decade are locked in—they’re going to happen. But it’s not too late to mitigate the worst effects of climate change. Those who are stagnant need to jumpstart, and those in gear need to accelerate. Business and government actions in the next decade are crucial and will set us up for success or failure in the decades that follow.
Taking action in five areas
We heard repeatedly at the summit that there’s a false trade-off between a stable climate and a healthy economy. In fact, a stable climate is a prerequisite to a healthy economy. And while climate change presents a mountain of risks, it offers a mountain range of opportunities. Crossing this economic tipping point will bring us new industries and business models. The entire landscape will look radically different in ten, 20, 30 years—meaning that clean technology is not just responsible, it’s good business. Most industries will come through this transition with huge long-term savings. And the good news is, we know what to do.
We gathered in Chicago because we know that there’s no better engine than business to deliver the changes we need. This is now a question of leadership. That’s what was so energizing about the summit: individually, through our own organizations, but also collectively with our broader influence across industries and regulation, we can drive the change required.
The summit focused on five key themes for change: future mobility, energy transition, circular economy, sustainable investing, and sustainable agriculture.
Future mobility
Future mobility is already tumbling over its tipping point. In the early 1900s, it took less than two decades for cars to overtake horse-drawn carriages as the primary form of transportation. We’re amid of a similar shift in terms of electric vehicles (EVs) and ridesharing. In the next two years, automakers will increase the number of EV options on the market from fewer than 100 to more than 500—many of them at affordable, midmarket price points attractive to fleets of all kinds, from buses to shipping to ridesharing. Speaking of which, by 2030, ridesharing will account for one-quarter of car trips.
Energy transitions
Our summit presenters were loud and clear: the market is moving toward electrifying everything—industrial machinery, heating, transportation, even cooking. Almost all of the incremental energy demand globally will be for electric power, thus paving the way for cleaner, quieter, and more efficient energy services. Furthermore, renewables are taking market share. A mixed portfolio—wind, solar, short-duration storage, long-duration storage, batteries—will provide almost all the incremental energy globally going forward. The push is led by solar, which has scaled over the past few years and gotten massively cheaper—a trend that will continue. And with storage innovation and natural gas, load following is more efficient than ever.
Building a highly advanced digital grid that draws on 100 percent renewable energy would require a federal energy policy. States, cities, and provinces are currently leading the charge: DC passed regulation to be 100 percent renewable by 2032; California’s goal is 2045. Meanwhile, businesses can prioritize electrification and renewable power both to reduce their carbon footprint and also to prepare for the inevitable energy transition.
Circular economy
Many summit attendees were astonished to learn that the fashion industry is responsible for 8 percent of carbon emissions. Businesses are finding significant opportunities to lower emissions and eliminate waste through circular systems—from decreasing the amount of water and energy used in manufacturing to reducing the amount of packaging in consumer products to creating efficient opportunities to reuse and recycle. That said, there’s a long way to go, and McKinsey.org and other organizations are targeting communities such as Buenos Aires, Argentina, and Bali with pilot recycling programs that they hope to scale in the years to come to prevent our cities from being buried under a mountain of trash. Start-ups are popping up in every industry with innovative methods for recycling and repurposing—one person’s garbage may be someone else’s jet fuel. And established brands have the power to move things quickly.
Sustainable investing
Today, almost every company reports on its corporate responsibility and sustainability metrics alongside its standard financial and operating metrics—but there’s a frustrating lack of standardization, leaving investors searching for ways to include climate change risk into their portfolio analyses. The challenges are manifold and include inconsistent taxonomies, excessive reporting burdens, divergent instruction, insufficient data, and a lack of regulation or assurance. Institutional investors in particular must step back and reconsider their investments in long-term assets, both physical and in capital markets, to determine how their risk profiles will change in the coming decades.
Sustainable agriculture
The agriculture sector has made tremendous strides in crop yields over the last century—yet almost half of all food globally goes to waste. Many worry that agricultural practices continue to accelerate climate change. There is a lot of innovation in the sector around point solutions, but overall it has yet to adopt a systemwide perspective and approach. The rewards of doing so would be huge: in addition to reducing the carbon footprint of the sector’s long supply chain, some see a significant opportunity for agriculture to sequester more carbon. Furthermore, there is a real opportunity to create creative finance mechanisms to help the sector break the cycle of piloting and move on to scaling—which could unlock systemic change.
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