4 questions CEOs must answer this year to achieve net zero

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Jules Kortenhorst, Chief Executive Officer, RMI

• CEOs have a particular responsibility in the shift to net-zero – and they must act with urgency.
• Here are four questions CEOs should ask of their businesses as they set out on this path.
• This World Economic Forum paper sets out these issues in greater detail.

During this decisive decade for the climate crisis, all CEOs must act with urgency to align their business with net-zero targets. As leaders of organizations with significant impact on emissions, CEOs have a particular responsibility to ensure rapid progress towards net zero. Those that fail to act will find themselves facing increasing risk, while those that do take the lead will discover significant opportunities in the net-zero global economy.

Net zero means eliminating emissions to the greatest extent possible and offsetting any residual emissions with measurable removals. Both of these actions must be taken immediately and simultaneously, with a global goal of hitting a 50% emissions reduction target by 2030 and net zero by 2050 or earlier. If we do not hit these global targets, we will lose the chance of keeping global heating to below 1.5˚C, putting human civilization at existential risk.

There are four key questions that all CEOs must answer this year:

1. What does my market look like in a net-zero world?

2. What is my business model for succeeding in that market?

3. What changes should I make now to prepare for success?

4. What supporting conditions will I also need and how do I go about winning them?

The shift to a net-zero global economy is already well underway, and implies a complete transformation of almost every sector. We are seeing a major scale-up of clean power, a shift to electric mobility, and a push towards more efficient electric buildings. Zero-emission fuels promise to transform processes in the industrial and manufacturing sectors, and agriculture is moving towards regenerative practices and more climate-friendly diets. Along with solutions to cut emissions, we will need a huge scale-up in carbon removal solutions such as reforestation, peatland and mangrove restoration, and direct-air capture technologies.

This transformation of the global economy will cause a massive turnover in capital stock, with many high-carbon assets retiring early to be replaced or retrofitted with low-carbon solutions. There will be creative destruction and stranded assets in many sectors of the economy. In the face of this process, CEOs must anticipate unprecedented physical and transitional risks. These risks are already hitting many unprepared CEOs hard, while those who anticipate the situation can avoid stranded assets and the spiralling costs of inaction.

Those CEOs who act early can capture major opportunities and build competitive advantage. Fortunes will be made and lost in this shift – we are already seeing a sizable transition in the power sector, with some players reaping rewards while others commit to major write-downs. As this process accelerates, making progress on emissions will increasingly become a prerequisite to doing business. Those who become “green champions” will streak ahead, while laggards will be increasingly perceived as pariahs.

CEOs and their boards must ensure they have a fundamental understanding of climate science, climate risks and the implications for their business. Companies can start now by implementing initiatives that save money or cost little, such as reducing waste, increasing circularity and improving energy efficiency. Companies can also engage with critical stakeholders such as climate-conscious investors, policy-makers and customers. More specific actions, such as reporting on emissions baselines using TCFD guidelines and setting clear reductions targets via the Science-Based Targets initiative, are further described in this full World Economic Forum paper from which this blog is drawn.

In addition to these specific actions, the paper also provides additional recommended resources and case study examples of companies leading the way towards net zero across different sectors. For example, the Mission Possible Partnership is designing pathways to net zero across seven hard-to-abate industries including aviation, cement, shipping and steel. The Race to Zero platform leading up to COP26 provides many examples of leading companies in these industries and others, such as Airbus, ArcelorMittal and Maersk.

As crucial leaders of the economy, CEOs have a critical role to play in driving the race to net zero: within their own businesses, among their peers, along their value chains, and in relation to the broader ecosystem of investors and government. It is up to all of us, especially the most powerful, to use the platform we have for positive change. Only when every leader acts on their responsibility will humanity have a chance to avert the worst of the climate crisis.