Climate CEOs: Green Demand Is Fast Outpacing Supply, Opportunity For Early Movers To Build Market Share

Rising demand for sustainable materials and low-carbon products is fast approaching a tipping point and industry leaders believe we will see “large-scale green markets” before the end of the decade.

A new report from the Alliance of CEO Climate Leaders, a group of global business heads committed to accelerating the net-zero transition, indicates that companies can thrive by taking an early market position. Many suppliers in a range of sectors from energy to transport, chemicals, cement, steel and aluminium are struggling to keep up with demand from consumers and downstream companies. This “green scarcity” will grow, which means agile companies can quickly carve out market share even though “green” costs today are higher.

The report, Winning in Green Markets: Scaling Products for a Net Zero World, was produced in partnership with Boston Consulting Group and is based on corporate sustainability commitments, green technology costs and interviews with sustainability leaders across sectors and geographies. It looks at the full value chain or lifecycle of products, with a focus on upstream emissions.

It follows the launch of the Global Risks Report 2023, which highlights “failure to mitigate and adapt to climate change” as a top global risk for business and society and urges “concerted, collective action” and cooperation across sectors to tackle these threats.

Members of the Alliance of CEO Climate Leaders will meet at the World Economic Forum Annual Meeting 2023 in Davos to drive change across their value chains and stoke demand for low-carbon products and materials. The alliance argues that a critical element of successful go-to-market strategies is collaboration.

“Companies can work with suppliers to secure and develop supply, often sharing the costs across the value chain. They can partner with customers to design and bring new green products to market and engage with government to drive the right enabling environment. They can even work with competitors to scale the critical supply, demand, transparency and infrastructure needed for green markets to materialize,” said Antonia Gawel, Head of Climate Change, World Economic Forum.

Several macro trends are making green markets more attractive. The energy crisis could ultimately accelerate the green transition. Consumers worldwide are increasingly environmentally conscious. Companies are setting commitments to tackle upstream scope 3 emissions and, more recently, translating their pledges into action. While COP27 fell short on emissions reductions from governments, various policies are still acting as catalysts – from America’s $369 billion Inflation Reduction Act and India’s climate-focused relief package to the European Union’s Green Deal and South Africa’s AFD Green Fund.

“We believe that significant market demand for low-carbon logistics will materialize this decade,” said Carsten Luetzenkirchen, Senior Vice-President, Commercial Operations, DHL Customer Solutions & Innovation. Rising green market demand, he said, has led his company to “set very ambitious emission reduction targets and why we are developing low- or net zero emission alternatives for customers along our entire logistics portfolio.”

Investing in this untapped market requires a mindset shift. “During the journey, it pays off to be brave,” said Andrea Fuder, Member of the Executive Board and Chief Purchasing Officer, Volvo Group. “You can’t calculate everything to the last digit and only then make a decision.”

“We are making sure it’s clear to our suppliers that for the right green offer we are willing to pay a fair premium. It’s a culture shift for suppliers to develop green products,” said Nicolas Clerget, Director, Net Zero Strategy, Heineken.

A second report, Accelerating Business Action on Climate Change Adaptation, produced in collaboration with PwC, shows how businesses can work with governments, international organizations and communities to adapt to climate hazards already facing the world. Climate adaptation was a major focus at the COP27 climate conference in Egypt, especially in light of the devastating floods in Pakistan. Businesses have so far played a small role in global efforts on adaptation, with only 3% of funding coming from private sources.

The financial impacts of climate change could reach up to 10% of annual sales for companies but those that proactively act on adaptation stand to gain.

Robert Moritz, CEO of PwC, said: “Climate change is a significant near-term risk for business. It also provides an untapped opportunity to both create business value and help respond to critical societal challenges. Business can and should be leading on climate adaptation. Our new report presents a framework for action, with practical steps businesses can take now to manage the risks, make the most of opportunities for growth and innovation, and work collaboratively with the wider ecosystem to make a positive impact beyond their operations and value chains.”