By David Frans, Yvonne Ruf and Daria Koroleva

The role of companies in mitigating climate change is indisputable: The CO2 emissions of large industrial conglomerates are in some cases comparable to those of entire countries. The corporate world has begun taking action on climate change, but current targets for reducing emissions show a lack of ambition. What is slowing companies down? We examine the major hurdles and challenges for corporate emission reduction plans and suggest six areas where they can take action to accelerate and benefit from decarbonization within the next five years – and some practical tools and solutions to help them.

Meeting the goal set by the Paris Agreement requires a 43 percent reduction in greenhouse gas emissions by 2030 and an 84 percent reduction by 2040 compared to 2019 levels, according to the Sixth Assessment Report of the IPCC. Companies face increasing pressure from regulators, investors and consumers to contribute to global decarbonization efforts. Yet, only around ten to 15 percent of large corporate players have set themselves a target of reducing emissions by 50 percent by 2030. What is more, the sum of the targets set by the biggest public companies in major economies will lead to an estimated decrease in these players' emissions of just 20 percent by 2030 – far short of the 43 percent needed.

Clearly, companies need to urgently speed up their carbon reduction plans if we are to meet the Paris target. The challenges that they face in this endeavor vary from industry to industry. However, some hurdles are common to all players, including limited access to low-carbon energy, low maturity of some clean technologies, highly complex and already stressed supply chains, business models focused on producing and selling more, a business culture focused on short-term financial targets and an overreliance on offsetting.

Six areas requiring urgent action

The hurdles that companies encounter in the race to net zero are not insurmountable, however. We identify six key areas where companies can take action to accelerate decarbonization within the critical timeframe of the next five years. Different corporate players in different industries and regions will face different challenges. The degree to which they focus on reducing Scope 1, 2 or 3 emissions differs accordingly – as do the tools and solutions available to them.

#1 Energy decarbonization

Reduce energy consumption and secure access to clean energy (Scopes 1 & 2)

This action area involves exploring low-carbon alternatives for energy use. More often than not, the supply of low-carbon energy is limited on the market and companies rely on the decarbonization of the energy system of the country in which they are located. They can take a number of actions in response, from reducing their consumption to switching to low-carbon electricity where available, or even producing their own. The Roland Berger Energy Decarbonizer is a powerful toolbox for helping companies make real changes by reducing and decarbonizing their energy use.

#2 Clean tech de-risking

Accelerate the ramp-up of clean tech with smart de-risking (Scopes 1 & 2)

Given the urgency of reducing emissions, it would be wrong for companies to wait for the cost of relevant clean tech to fall or a perfect centralized support mechanism to be deployed. De-risking overcomes this hurdle by unlocking private investment with contributions from the public sector, until such time as the technology reaches commercial feasibility. "Smart de-risking" involves identifying and exploring support mechanisms from various sources and relevant partnership options, which are then combined to de-risk a captive project and secure investment. The four-step Roland Berger de-risking approach guides companies through this process.

#3 Supply chain engagement

Reduce purchased emissions by identifying and engaging critical suppliers (Scope 3)

For OEMs, in particular, Scope 3 emissions account for the largest share of their emissions – usually between 90 and 99 percent in the case of automotive and machinery OEMs. Up to 40 percent of the total emissions are due to goods and services procured by OEMs. The Roland Berger Supply Chain Decarbonizer is a toolbox for helping companies reduce their upstream Scope 3 emissions through targeted engagement with critical suppliers. Creating a roadmap for immediate actions will help achieve tangible results, putting companies ahead of the competition in terms of their carbon footprint.

#4 Product design and circularity

Limit products' carbon footprints by rethinking their design and material mix (Scopes 1, 2 & 3) or leveraging circularity

Decarbonizing specific inputs or components can be difficult. Instead, companies may decide to rethink their product's design – changing the material mix to include materials with similar features but a smaller carbon footprint, adjusting the product's dimensions (especially its weight) or extending a component's lifecycle through reuse and recycling. Companies have a range of levers at their disposal, but switching to a circular economy often requires a complete rethink of business models, operations and product portfolios. Such changes cannot be implemented instantaneously, so companies need to initiate this process as a matter of urgency.

#5 Organization

Unleash employees' creativity with a corporate culture focused on sustainability (Scopes 1, 2 & 3)

To speed up their implementation of climate action, companies need their organizations to be thoroughly aligned with sustainability. This often necessitates a holistic change of culture, away from the current short-term focus. Sustainability must be embedded in all layers of the organization and business units, and reflected in the company's KPIs, governance, core competences and incentive mechanisms. For the cultural change to be lasting, companies must access the ability, willingness and readiness of their employees to embark on a joint journey towards sustainability. Fitting policies and support from management will underpin this process.

#6 Climate action digitalization

Track progress and optimize the decarbonization pathway using digital tools and AI (Scopes 1, 2 & 3)

To build an effective emission reduction plan, companies must collect data, track components along the entire product cycle, model future emissions and forecast the impact of reduction levers. This relies on access to reliable, end-to-end data and companies should ensure the compatibility of their different systems used for storing and using data. A useful approach for companies is to build a "climate action digitalization strategy," carefully evaluating the various tools that can be integrated with existing systems to enable footprinting, action tracking, forecasting, optimization and supplier engagement.

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