McKinsey & Company explain that decarbonization will reshape the economy, opening new markets and imperil others. Now is the moment for companies to spot green growth opportunities and move boldly to take advantage.
Call it the Great Reallocation. As the dangers of climate change have become more apparent and urgent, investors, customers, and regulators have raised their expectations for companies, demanding that they set targets for reducing net emissions of greenhouse gases (GHGs) to zero and offer clear plans for achieving them. The momentum toward net zero is undeniable: nearly 90 percent of emissions are now targeted for reduction under net-zero commitments,1 and financial institutions responsible for more than $130 trillion of capital have declared that they will manage these assets in ways intended to hold warming below 1.5°C.
This wholesale shift toward institutions and projects that emit minimal GHGs may create the largest reallocation of capital in history. At present, about 65 percent of annual capital spending goes into high-emissions assets. But in a scenario where the world reaches net zero in 2050, McKinsey analysis suggests that this pattern would reverse; 70 percent of capital outlays through 2050 would be spent instead on low-emissions assets. And as organizations adjust their operating budgets, they would pay trillions of dollars for renewable energy, circular materials, and other low-emissions inputs during this time frame. These dynamics mean that businesses must make bolder moves.