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Companies Lose 20% of Their Profits by Not Decarbonizing



"The Global Decarbonization Pace Is Still Too Slow"


According to PwC's study, the world needs to decarbonize seven times faster than the current pace to limit warming to 1.5°C above pre-industrial levels.


It's time to take climate risk seriously. According to PwC's Net Zero Emissions Index (NZEI), Mexico is the second Latin American country with the highest CO₂ emissions production, after Ecuador. This figure is an urgent reminder that action is needed to achieve ambitious net-zero emissions goals. With a new year on the horizon, the possibility of companies unlocking the advantages of decarbonization increases, and, more than that, emission reduction and transformation become increasingly necessary.


According to McKinsey, if companies do not decarbonize, they risk losing up to 20% of their economic benefits over the next seven years, due to factors such as asset immobilization, increased cost of capital, and loss of market share.


Executives tend to be aware of the physical dangers of climate change in a general sense, but many of them have an incomplete understanding of the specific impact it could have on their businesses; for example, the physical risks to operations, infrastructure, or the supply chain. In addition, they are unaware of the challenges related to the social and economic transition that a decarbonized world entails, such as changes in demand, impact on energy prices, building renovation requirements, or changes in the competitiveness of logistics chains.


Although recognizing climate risk is one thing, having a clear strategy capable of being executed for a clear benefit is another, one that requires a solid understanding of the problems, as well as recognizing how to address them. However, according to KPMG, 78% of executives are unaware of possible solutions to achieve decarbonization, while only 20% are already implementing initiatives related to CO₂ emission reduction. Something that also hinders them from implementing sustainable tools is their preference for traditional methodologies/activities that they have used for many years and have given them results, perhaps some resistance and uncertainty around these new tools.


In addition to the climate challenge, companies face the complexity of inflation, constant market changes, supply shortages, and rising interest rates, among others. To create value, businesses must begin implementing decarbonization strategies and thus keep up with a changing landscape of political and market opportunities.


The Gap Between Goal and Action


The distance between strategy and implementation threatens a future free of greenhouse gas emissions and completely decarbonized. To narrow the gap, it is necessary to transform the way businesses operate from the inside out. Decarbonization can offer companies the opportunity to remain competitive in the various possible climate scenarios and, at the same time, reduce emissions to avoid the worst climate scenarios.


Organizations that simultaneously integrate investment and carbon emissions reduction are already seeing results. A McKinsey study reveals that these companies have reductions of up to 40% in emissions, resulting in an increase of at least 15% in financial results.


Decarbonizing operations often requires a transformation of processes and structures. There must be clear participation and responsibility from executives, as well as their ability to continuously reassess the decarbonization strategy as input prices change (for example, energy prices) and new technologies are commercialized.



The Path to Net-Zero


The global pace of decarbonization remains too slow: according to PwC's study, the world needs to decarbonize seven times faster than the current pace to limit warming to 1.5°C above pre-industrial levels.


Technology will play a fundamental role in reducing the decarbonization arc. According to the International Energy Agency, more than a third of emissions reductions occurring in 2050 depend on emerging technologies such as carbon capture, utilization, and storage systems, which would contribute about 70% of what is needed to achieve the Net-Zero scenario.


Climate risks are also profoundly human challenges. Having a better understanding of environmental challenges (both physical and transition-related) and using emerging technology - such as a decarbonization system - as a springboard to build a more robust and effective emissions strategy that helps mitigate risks, identify opportunities, and provide insights into the independent challenges related to decarbonization across the entire business is the sure path to a Net-Zero future where the window of opportunity is much wider and competitive.

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