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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Future-proof your business with a credible net-zero transition plan for the new economy. Net Zero Business Models: Winning in the Global Net Zero Economy delivers a breakthrough approach to transition from business models contributing to climate disaster to Net Zero Business Models crucial to sustainability and profitability. Based on the authors' business advisory expertise and insights from their research with over 200 best-in-class global companies, this book is an indispensable guide for executives, corporate directors, and institutional investors. Discover how to implement a bona fide net zero transition plan and processes to: * Identify new Board and Investor expectations for Net Zero Transition Plans (Beyond ESG) * Ensure the Five eco-efficiency plans, processes and value drivers are in place as the foundation for a credible transition plan * Select one of Four Pathways to a Net Zero Business Model as strategic options * Apply the Three Domains for Systems Thinking required by leaders for Net Zero strategic leadership * Align key metrics, targets, and incentive designs to accelerate business model transition Metrics and Targets are not a plan, and a commitment to net zero is not a business strategy. Net Zero Business Models has been endorsed by C-Suites, Boards and Institutional Investors representing over $ 80 trillion in assets under management. This is the playbook you need to win in the Net Zero Global Economy.
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Seitenzahl: 531
Veröffentlichungsjahr: 2023
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Table of Contents
Cover
Additional Praise for
Net Zero Business Models
Title Page
Copyright
List of Exhibits
List of Appendices
Prologue
NOTES
Foreword
Preface
INTRODUCTION: HOW TO USE THIS BOOK
PART I: SETTING THE CONTEXT FOR NET ZERO
PART II: THE TECHNICAL FOUNDATIONS OF NET ZERO BUSINESS MODELS
PART III: THE FOUR PATHWAYS TO NET ZERO
PART IV: IMPLEMENTING A PATHWAY TO NET ZERO
PART V BEYOND NET ZERO: SYSTEMS CHANGE
NOTES
Part I: Setting the Context for Net Zero
1 THE NET ZERO OPPORTUNITY
THE TRANSFORMATIONAL FORCES OF NET ZERO
MANAGING THE TRANSFORMATIONAL FORCES OF NET ZERO IN A VUCA WORLD
WHAT DOES “NET ZERO” MEAN?
GOING BEYOND NET ZERO
WHAT DOES THE TRANSITION TO A NET ZERO ECONOMY LOOK LIKE?
THE NET ZERO OPPORTUNITY
SUMMARY: WHERE TO BEGIN
NOTES
Part II: The Technical Foundations of Net Zero Business Models
2 AN OVERVIEW OF GREENHOUSE GAS EMISSIONS
WHAT ARE SCOPE 1, 2, AND 3 EMISSIONS?
DEVELOPING A GHG EMISSIONS DATA STRATEGY
WHAT ARE SCOPE 1 EMISSIONS?
WHAT ARE SCOPE 2 EMISSIONS?
WHAT ARE SCOPE 3 EMISSIONS?
SUMMARY: GETTING STARTED
NOTES
3 APPLYING A CARBON SHOCK TEST
THE $20 TRILLION PROBLEM
SOME CONTEXT FOR A CARBON TAX
SCENARIO PLANNING FOR CARBON TAXES
SUMMARY: HAVE GOOD PROCESSES
NOTES
4 SCIENCE‐BASED EMISSIONS‐REDUCTION TARGETS
THE FOUR OBJECTIVES OF THE NET ZERO STANDARD
GENERALLY ACCEPTED GHG ACCOUNTING AND REPORTING PRINCIPLES
FIVE STEPS TO SET SCIENCE‐BASED TARGETS
SCIENCE‐BASED TARGETS UNIQUE TO THE POWER SECTOR
SCIENCE‐BASED TARGETS UNIQUE TO THE FOREST, LAND, AND AGRICULTURE (FLAG) SECTOR
UPDATING AND COMMUNICATING TARGETS
THE VALIDATION PROCESS
SUMMARY: SCIENCE‐BASED TARGETS ARE NOT A TRANSITION PLAN
NOTES
Part III: The Four Pathways to Net Zero
5 THE FOUR PATHWAYS TO NET ZERO: AN INTRODUCTION
ECO‐EFFICIENCY PROCESSES AND SYSTEMS
SUMMARY
NOTES
6 PATHWAY ONE: ECO‐EFFICIENCY
PATHWAY ONE: COMPANIES WITH LOW CARBON INTENSITY BUSINESS MODELS
PATHWAY ONE: COMPANIES WITH HIGH CARBON INTENSITY BUSINESS MODELS
CHARACTERISTICS OF PATHWAY ONE
PATHWAY ONE RISK FACTORS
CRITICAL SUCCESS FACTORS FOR PATHWAY ONE COMPANIES
SUMMARY
NOTES
7 PATHWAY TWO, OPTION ONE: INCREMENTAL TRANSFORMATION OF THE BUSINESS MODEL—ZERO‐CARBON PRODUCTS AND SERVICES
RE‐ENGINEERING WITH A FOCUS ON ZERO‐CARBON PRODUCTS AND SERVICES
NET ZERO TRANSFORMATION STRATEGIES AND TRANSITION PLANS
COMPLETE TRANSFORMATION OF THE EXISTING PRODUCT AND SERVICES PORTFOLIO TO ZERO CARBON
SUMMARY
NOTES
8 PATHWAY TWO, OPTION TWO: COMPLETE TRANSFORMATION OF THE BUSINESS MODEL
COMPLETE TRANSFORMATION OF THE BUSINESS MODEL
CHARACTERISTICS OF PATHWAY TWO
PATHWAY TWO RISK FACTORS
CRITICAL SUCCESS FACTORS FOR PATHWAY TWO COMPANIES
SUMMARY
NOTES
9 PATHWAY THREE: ECO‐STARTUPS, NEW VENTURES, SPINOUTS, AND INDUSTRY DISRUPTORS
CLIMATE TECHNOLOGY AND ECO‐STARTUPS
INNOVATION AND INDUSTRY DISRUPTORS
ABOUT DISRUPTION
THE DISRUPTION OPPORTUNITY MATRIX
INCREMENTAL INNOVATION VERSUS EXPONENTIAL INNOVATION
CHARACTERISTICS OF PATHWAY THREE
PATHWAY THREE RISK FACTORS
CRITICAL SUCCESS FACTORS FOR PATHWAY THREE COMPANIES
SUMMARY
NOTES
10 PATHWAY FOUR: INDUSTRY ECOSYSTEM(S) TRANSFORMERS
THE FOUR STAGES OF INDUSTRY ECOSYSTEM(S) TRANSFORMATION
THE TRANSFORMATION OF THE AUTOMOBILE INDUSTRY
TESLA THE DISRUPTOR
TESLA: A PATHWAY FOUR INDUSTRY ECO‐SYSTEM(S) TRANSFORMATION LEADER
THE RISE OF ELECTRIC VEHICLES
TESLA'S BUSINESS MODEL
CHARACTERISTICS OF PATHWAY FOUR
PATHWAY FOUR RISK FACTORS
CRITICAL SUCCESS FACTORS FOR LEADING AN INDUSTRY TRANSFORMATION
SUMMARY
NOTES
Part IV: Implementing a Pathway to Net Zero
11 A FOUNDATIONAL FRAMEWORK TO CHOOSE A PATHWAY
THE INNOVATION AND RETURN ON CAPITAL LIFE CYCLE
HOW THE INNOVATION AND RETURN ON CAPITAL LIFE CYCLE EFFECTS VALUATION
THE FOUR DOMAINS OF CARBON INTENSITY, THE INNOVATION AND RETURN ON CAPITAL LIFE CYCLE, AND VALUATION
SUMMARY: HAVE GOOD PROCESSES TO PRESERVE AND GROW SHAREHOLDER VALUE
NOTES
12 PREPARING TO LEAD THE TRANSFORMATION: KEY ELEMENTS OF SUCCESSFUL TRANSFORMATIONS
THE THREE TYPES OF CHANGE
HEARING THE CALL
PREPARING TO LEAD TO NET ZERO
LAUNCHING THE TRANSFORMATION
SUMMARY
NOTES
13 THE THREE DOMAINS OF SYSTEMS THINKING
THE OPERATIONS DOMAIN
THE BUSINESS SYSTEMS DOMAIN
THE GLOBAL SYSTEMS DOMAIN
CULTIVATING SYSTEMS‐THINKING CAPACITY FOR THE TRANSITION TO NET ZERO
DOMAINS OF SYSTEMS THINKING FOR THE PATHWAYS TO NET ZERO
SUMMARY
NOTES
14 TELLING THE NET ZERO STORY
COMPANIES NEED GOOD DATA TO TELL THEIR NET ZERO STORIES
THE EVOLUTION OF VOLUNTARY ESG AND CLIMATE‐RELATED DISCLOSURE—THE ALPHABET SOUP
THE CONSOLIDATION OF VOLUNTARY CLIMATE‐RELATED DISCLOSURE INTO UNIVERSAL STANDARDS
THE EVOLUTION OF MANDATORY CLIMATE‐RELATED DISCLOSURE
TELLING THE NET ZERO STORY BEFORE THE IMPLEMENTATION OF MANDATORY CLIMATE‐RELATED DISCLOSURES
OTHER KEY ROLES FOR DISCLOSURE PROCESS DEVELOPMENT
SUMMARY
NOTES
15 OBSTACLES TO NET ZERO
MENTAL OBSTACLES
GREENWASHING
HIDDEN OBSTACLES
FOSSIL FUELS AND THE DEVELOPING WORLD
FICKLE POLITICAL SUPPORT
SUMMARY
NOTES
Part V: Beyond Net Zero: Systems Change
16 EPILOGUE: TOWARD A NET ZERO CIVILIZATION
THE SHIFT TO STAKEHOLDER CAPITALISM
THE INFRASTRUCTURE OF STAKEHOLDER CAPITALISM AND SYSTEMS CHANGE
BENEFIT CORPORATION GOVERNANCE
MULTICAPITAL ACCOUNTING
DOUGHNUT ECONOMICS
HEART‐BASED LEADERSHIP
CONCLUSION
NOTES
Appendices
Acknowledgments
NOTE
Index
End User License Agreement
List of Illustrations
Preface
EXHIBIT P.1 The four Pathways to success in the global net zero economy.
Introduction
EXHIBIT I.1 Winning business models: commercial and net zero success
Chapter 1
EXHIBIT 1.1 The four Pathways to net zero and commercial success
EXHIBIT 1.2 The transformational forces of net zero in a VUCA world
EXHIBIT 1.3 91% of companies have yet to set targets aligned with Paris Agre...
Chapter 2
EXHIBIT 2.1 Overview of GHG Protocol scopes and emissions across the value c...
EXHIBIT 2.2 Scope 3 emissions represent between 75% and 98% of all GHG emiss...
Chapter 3
EXHIBIT 3.1 Percentage of companies in various sectors with a greater than 5...
Chapter 4
EXHIBIT 4.1 The five steps to set science‐based targets
EXHIBIT 4.2 The SBTi's expansive approach to setting target boundaries...
EXHIBIT 4.3 Percentages of global GHG emissions by sector
EXHIBIT 4.4 Percentages of U.S. GHG emissions by sector
EXHIBIT 4.5 The Science Based Targets Initiative's five‐step process to vali...
Chapter 5
EXHIBIT 5.1 The four Pathways to a net zero business model
EXHIBIT 5.2 The four Pathways to net zero and commercial success
EXHIBIT 5.3 The five core eco‐efficiency processes and systems
EXHIBIT 5.4 The digital transformation into a SMART planet
Chapter 6
EXHIBIT 6.1 Pathway One
Chapter 7
EXHIBIT 7.1 Pathway Two, Option One
Chapter 8
EXHIBIT 8.1 Pathway Two, Option Two
Chapter 9
EXHIBIT 9.1 Pathway Three
EXHIBIT 9.2 The Disruption Opportunity matrix
EXHIBIT 9.3 Exponential technology matrix
Chapter 10
EXHIBIT 10.1 Pathway Four
EXHIBIT 10.2 Tesla's historical revenue growth
EXHIBIT 10.3 Global electric vehicle registrations
EXHIBIT 10.4 Global sales of battery and plug‐in hybrid global electric vehi...
EXHIBIT 10.5 Revenues, multiples of enterprise value to revenues, and percen...
Chapter 11
EXHIBIT 11.1 The four stages of innovation and return on capital life cycle...
EXHIBIT 11.2 The effect of the four stages of innovation and return on capit...
EXHIBIT 11.3 The innovation, return on capital life cycle, and carbon intens...
EXHIBIT 11.4 NuScale, Ǿrsted, and Vattenfall on the innovation, return on ca...
Chapter 12
EXHIBIT 12.1 Developmental change
EXHIBIT 12.2 Transitional change
EXHIBIT 12.3 Transformational change
Chapter 13
EXHIBIT 13.1 The three domains of systems thinking Source: FutureZero
EXHIBIT 13.2 The three domains of systems thinking and the four Pathways
EXHIBIT 13.3 Systems thinking in the four Pathways
EXHIBIT 13.4 The power generation mix of the North American grid
Chapter 14
EXHIBIT 14.1 Summary table of key climate‐related disclosure metrics...
Chapter 16
EXHIBIT 16.1 The doughnut and social and planetary boundaries
EXHIBIT 16.2 The net zero sweet spot and the three transformational trends
Appendices
APPENDIX P.1 Target Companies with Best Climate‐Related Disclosure Practices...
APPENDIX 1.1 NextEra's Three Transformations
APPENDIX 1.2 The Nine Planetary Boundaries
APPENDIX 1.3 The 17 UN Sustainable Development Goals
APPENDIX 2.1 Google's Carbon‐Free Energy
APPENDIX 2.2 Resources About Calculating Greenhouse Gas Emissions
APPENDIX 3.1 The Effect of a $100 per Ton Carbon Tax on Return on Capital, a...
APPENDIX 4.1 Resources About Setting Science‐Based Emissions Reduction Targe...
APPENDIX 5.1 Intel's Three Domains of Innovation and Transformation
APPENDIX 6.1 Some Questions Pathway One Company Directors and Investors Migh...
APPENDIX 7.1 Some Questions Pathway Two Company Boards and Investors Might A...
APPENDIX 9.1 Some Questions Pathway Three Company Boards and Investors Might...
APPENDIX 10.1 Some Questions Pathway Four Company Boards and Investors Might...
APPENDIX 12.1 Possible Questions About Corporate Transformations
APPENDIX 13.1 World and North American Power Generation Mix
APPENDIX 13.2 The North American Power Grid
APPENDIX 14.1 Worksheet for Carbon‐Free Energy
APPENDIX 14.2 Worksheet for Eco‐Efficiency
APPENDIX 14.3 Worksheet for Innovation
APPENDIX 14.4 Gap Analysis of Net Zero Business Model Disclosures Missing fr...
Guide
Cover Page
Additional Praise for Net Zero Business Models
Title Page
Copyright
List of Exhibits
List of Appendices
Prologue
Foreword
Preface
Introduction
Table of Contents
Begin Reading
Appendices
Acknowledgments
Index
Wiley End User License Agreement
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Additional Praise for Net Zero Business Models
“Finally a book that recognizes and separates reality from fiction in what it will really take to achieve net zero carbon emissions. Montgomery and Van Clieaf make clear that, for companies with high carbon intensity footprints, contracts for renewable resources (solar or wind) alone do not provide 24x7 electricity or steam needed for their operations. We are proud to be recognized as one of the solutions to achieve the 2040 net zero emissions target as outlined by the International Energy Agency. Net Zero Business Models is brilliant because it concisely outlines the foundation of the future energy system required for a net zero world: Smart Power Grids powered by 100 % Carbon Free Energy and 24/7/365 electric power reliability.”
Chris Colbert, CFA,Chief Financial Officer, NuScale Power Corporation
“Transitioning the North American power system over the next 20 years to a 100% carbon free energy (CFE) and a SMART power grid that delivers 24/7/365 power reliability is the engine to achieve the net zero global economy. Net Zero Business Models provides C‐Suites, Boards, and Regulators four net zero navigation pathways and five core eco‐efficiency processes, based on best‐in‐class research from companies executing a net zero business model strategic intent. Adopting a long‐term energy strategy that identifies the requisite strategic leadership capacity, including the three domains of systems thinking and innovation required, reduces the friction to transition to a net zero economy.”
Aurora Geis, PCCFormer Board Chair, CPS Energy, San Antonio, TexasAmerica's largest electric and gas municipal utility
“Given the widespread evidence of climate change, the need to create a net zero economy is a global imperative. What's been missing is a clear roadmap for companies to achieve this goal. Net Zero Business Models: Winning in the Global Net Zero Economy, by John Montgomery and Mark Van Clieaf, lays out the practical steps companies need to take—and boards need to monitor—to ensure a successful transition to the net zero economy. It provides invaluable insights for corporate leaders and investors alike.”
Chris Librie, Global Director,ESG and Sustainability Strategy, Applied Materials Original contributor to the Green House Gas (GHG) Corporate Accounting and Reporting Standard
“As companies and investors wake up to the reality that “net zero” is more than a marketing strategy or a compliance exercise, Net Zero Business Models provides an excellent guide to understanding not only what it means but also how to get there with practical, phased recommendations to change the scaffolding that determines how companies operate, grow, and adapt to impending radical change. Thank you!”
Susan MacCormack, Partner and Chair ESG, Social Enterprise and Impact Investing and Energy practices, Morrison & Foerster
“An Extraordinary Book!”
Michael Hugman, Director, Climate Finance, Children's Investment Fund Foundation
“An excellent book that offers detailed pathways to net zero business models, a necessary step on society's longer journey to a net negative future where a regenerative and distributive economy will counteract the damage wrought to our climate regulation and human systems since the Industrial Revolution.”
Bill Baue, Senior Director, r3.0 (Redesign for Resilience & Regeneration) and Original Instigator, Science Based Targets initiative
“This inspired and pragmatic book points the way to an urgently needed new economic mainstream that naturally integrates business success and economic development with the regeneration of people and society, nature, and the climate. The time is now!”
Walter Link, Founding CEO, NOW.Partners and FutureEconomy.Forum
“Many books make the case for change towards net zero. This book goes further in setting out four distinct pathways for companies to follow in transitioning to net zero business models and playing a role in creating a net zero economy. Cultivating systems leadership is seen as essential to the transformation. Many books play lip service to the need for companies to recognise systemic interrelationships in achieving their long‐term goals in a complex world. Uniquely, this book is clear about the different forms of systems thinking required in pursuing a net zero economy at the operational, business system and industry/economy levels.”
Dr Michael C. Jackson, Order of the British Empire (OBE)Emeritus Professor, University of Hull, United KingdomFormer Editor‐in Chief, Systems Research and Behavioral Science
“Evolving the mainstream economic paradigm away from extraction to regeneration rapidly is the world's #1 challenge. It impacts every facet of human existence, including not only not‐so long‐term financial returns, human security, inclusion, diversity, democracy, but also innovation, entrepreneurship, leadership, and politics. Net Zero Business Models show us it can be done, and how! The book is a trove of examples, strategies, and solutions never assembled and shared in one place. Phenomenal!”
Marcello Palazzi, Co‐Founder, B Lab Europe, B for Good Leaders, and NOW Partners
“Finally, someone organized the conversation about net zero. A must read for anyone serious about getting the carbon out of the economy as part of a just transition to credible stakeholder capitalism.”
Jay Coen Gilbert, CEO, Imperative 21 and co‐founder B‐Lab
“The world is being challenged, businesses are being challenged, and we need to educate future business leaders to address these challenges. Net Zero Business Models is the blueprint for doing that!”
Dean Thomas Horan, School of Business and Society, University of Redlands School of Business
“A must read for all businesses in this era of climate transition!”
Christopher Marquis, Sinyi, Professor of Chinese Management,Cambridge Judge Business School, and author of Better Business: How the B Corp Movement Is Remaking Capitalism and Mao and Markets: The Communist Roots of Chinese Enterprise
“Achieving a net zero economy has become a global necessity. Net Zero Business Models documents the challenges corporations face in attaining this goal in a sober, proactive manner. Net zero must become a core part of each company’s long‐term strategy. Four net zero pathways are described in detail with excellent examples given for each pathway. For some companies, the change will be transitional and for others transformational. Change management is an essential ingredient. The authors go to great pains to point out that winning business models must be net zero and commercial successes. Corporate strategy and finance must act together.
Winners will be companies that can make the net zero transition integral to their core business strategy and a competitive advantage while generating returns on capital that exceed the cost of capital and future cost of carbon. The enormity of the challenge should not be underestimated. The authors provide a comprehensive playbook for not only meeting the net zero challenge but making it an economic success.”
David Holland, Fractal Value Advisors and Co‐Author “Beyond Earnings”Former Managing Director, Credit Suisse HOLT, Company Valuation and Analytics
“Finally, a book that transcends the climate change debates to provide a roadmap for companies and their investors to successfully navigate perhaps the greatest business opportunity and challenge of the twenty‐first century. The authors offer insights on real‐world economic risks and industry sector net zero business strategy benchmarks. They also provide best in class examples and metrics from their research, that goes beyond the International Sustainability Standards Board (ISSB), Glasgow Financial Alliance for Net Zero (GFANZ), UK Transition Plan Task Force (UK‐TFT), Climate Action 100 + (CA‐100) net zero guidance frameworks from which to evaluate the viability of company net zero transition plans.
This book is a “must read” for legal counsel, advisors, executives, directors, and managers with fiduciary‐related accountability for companies or institutional investors.”
Keith Johnson, Former Chief Legal Counsel,State of Wisconsin Investment Board (SWIB)Co‐Editor, Cambridge Handbook of Institutional Investment and Fiduciary DutyNational Association of Public Pension Attorneys, Former President
NET ZERO BUSINESS MODELS
Winning in the Global Net Zero Economy
John Montgomery and Mark Van Clieaf
Copyright © 2023 by John Montgomery and FutureZero Inc, all rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per‐copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750‐8400, fax (978) 750‐4470, or on the web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748‐6011, fax (201) 748‐6008, or online at http://www.wiley.com/go/permission.
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Library of Congress Cataloging‐in‐Publication Data is Available:
ISBN 9781119895060 (Hardback)
ISBN 9781119895084 (ePDF)
ISBN 9781119895077 (epub)
Cover Design and Image: © Denise Bonte
John Montgomery/Photo Credit: © Todd Pickering
Mark Van Clieaf/Photo Credit: © Leino Ole ‐ Halton Headshots
LIST OF EXHIBITS
Exhibit P.1
The Four Pathways to Success in the Global Net Zero Economy
Exhibit I.1
Winning Business Models: Commercial and Net Zero Success
Exhibit 1.1
The Four Pathways to Net Zero and Commercial Success
Exhibit 1.2
The Transformational Forces of Net Zero in a VUCA World
Exhibit 1.3
91% of Companies Have Yet to Set Targets Aligned with Paris Agreement Goals
Exhibit 2.1
Overview of GHG Protocol Scopes and Emissions Across the Value Chain
Exhibit 2.2
Scope 3 Emissions Represent Between 75% and 98% of all GHG Emissions in 10 Out of 12 Sectors of the Economy
Exhibit 3.1
Percentage of Companies in Various Sectors With a Greater than 5% Reduction in Return on Capital Resulting from a $75 Per Ton Carbon Tax
Exhibit 4.1
The Five Steps to Set Science‐Based Targets
Exhibit 4.2
The SBTi's Expansive Approach to Setting Target Boundaries
Exhibit 4.3
Percentages of Global GHG Emissions by Sector
Exhibit 4.4
Percentages of U.S. GHG Emissions by Sector
Exhibit 4.5
The Science Based Targets Initiative's Five‐Step Process to Validate Near‐Term and Long‐Term Emissions‐Reduction Targets
Exhibit 5.1
The Four Pathways to A Net Zero Business Model
Exhibit 5.2
The Four Pathways to Net Zero and Commercial Success
Exhibit 5.3
The Five Core Eco‐Efficiency Processes and Systems
Exhibit 5.4
The Digital Transformation into a SMART Planet
Exhibit 6.1
Pathway One
Exhibit 7.1
Pathway Two, Option One
Exhibit 8.1
Pathway Two, Option Two
Exhibit 9.1
Pathway Three
Exhibit 9.2
The Disruption Opportunity Matrix
Exhibit 9.3
Exponential Technology Matrix
Exhibit 10.1
Pathway Four
Exhibit 10.2
Tesla's Historical Revenue Growth
Exhibit 10.3
Global Electric Vehicle Registrations
Exhibit 10.4
Global Sales of Battery and Plug‐in Hybrid Global Electric Vehicles by Leading Electric Vehicle Manufacturers
Exhibit 10.5
Revenues, Multiples of Enterprise Value to Revenues, and Percentage Shares of Industry Enterprise Value of Leading Electric Vehicle Manufacturers
Exhibit 11.1
The Four Stages of Innovation and Return on Capital Life Cycle
Exhibit 11.2
The Effect of the Four Stages of Innovation and Return on Capital Life Cycle on The Future Value of a Company
Exhibit 11.3
The Innovation, Return on Capital Life Cycle, and Carbon Intensity Business Model Performance Matrix
Exhibit 11.4
NuScale, Ǿrsted, and Vattenfall on the Innovation, Return on Capital Life Cycle, Carbon Intensity and Business Model Performance Matrix
Exhibit 12.1
Developmental Change
Exhibit 12.2
Transitional Change
Exhibit 12.3
Transformational Change
Exhibit 13.1
The Three Domains of Systems Thinking
Exhibit 13.2
The Three Domains of Systems Thinking and the Four Pathways
Exhibit 13.3
Systems Thinking in the Four Pathways
Exhibit 13.4
The Power Generation Mix of the North American Grid
Exhibit 14.1
Summary Table of Key Climate‐Related Disclosure Metrics
Exhibit 16.1
The Doughnut and Social and Planetary Boundaries
Exhibit 16.2
The Net Zero Sweet Spot and the Three Transformational Trends
LIST OF APPENDICES
Appendix P.1
Target Companies with Best Climate‐Related Disclosure Practices
Appendix 1.1
NextEra's Three Transformations
Appendix 1.2
The Nine Planetary Boundaries
Appendix 1.3
The 17 UN Sustainable Development Goals
Appendix 2.1
Google's Carbon‐Free Energy
Appendix 2.2
Resources About Calculating Greenhouse Gas Emissions
Appendix 3.1
The Effect of a $100 per Ton Carbon Tax on Return on Capital, after Cost of Capital and Cost of Carbon, on over 18,000 Publicly Traded Companies
Appendix 4.1
Resources about Setting Science‐Based Emissions Reduction Targets
Appendix 5.1
Intel's Three Domains of Innovation and Transformation
Appendix 6.1
Some Questions Pathway One Company Directors and Investors Might Ask and for Management to Consider
Appendix 7.1
Some Questions Pathway Two Company Boards and Investors Might Ask and for Management to Consider
Appendix 9.1
Some Questions Pathway Three Company Boards and Investors Might Ask and for Management to Consider
Appendix 10.1
Some Questions Pathway Four Company Boards and Investors Might Ask and for Management to Consider
Appendix 12.1
Possible Questions About Corporate Transformations
Appendix 13.1
World and North American Power Generation Mix
Appendix 13.2
The North American Power Grid
Appendix 14.1
Worksheet for Carbon‐Free Energy
Appendix 14.2
Worksheet for Eco‐Efficiency
Appendix 14.3
Worksheet for Innovation
Appendix 14.4
Gap Analysis of Net Zero Business Model Disclosures Missing from Guidance Frameworks
PROLOGUE
Inverness, California, and Toronto, Ontario
29 September 2022
During our collaboration on a project to make the strategic duties of corporate directors explicit under Delaware law, we noted that BlackRock Chairman Larry Fink's 2021 letter to CEOs demanded that businesses prepare plans to conform their business models to a net zero emissions economy but the letter had little guidance on how to do so. We suspected that most companies would grossly underestimate the magnitude of the transformation required to conform their business models to a net zero emissions economy and be commercially successful.
To test this hypothesis, Credit Suisse HOLT® helped Mark and his FutureZero team stress‐test over 14,000 public companies with available carbon data for a hypothetical carbon price of $75 per metric ton of CO2 emissions. The stress‐test revealed that every industrial sector except energy has material capital markets securities mispricing risk relative to the prospective carbon shock. This stress test scenario analysis only included Scope 1 and Scope 2 emissions. The analysis suggested that more than 40% of the companies analyzed will require a complete transformation of their business models to achieve net zero.
The stress‐test showed a clear need for Net Zero Business Models because the prevailing conversation greatly underestimates the risk to individual companies, specific industries, and the overall financial system posed by a potential real carbon cost and does not recognize the need to integrate reducing greenhouse gas emissions with companies' core business strategies and business model design. In October 2021, Mark, the FutureZero team, Sustainalytics, and Credit Suisse HOLT® held a virtual conference on net zero business models that attracted over 2,000 people from 38 countries and over $50 trillion in assets under management. The audience for this event was four times larger than expected, which confirmed the urgent need for Net Zero Business Models.
During this time, James (Jim) Goodfellow, a corporate director and former vice chairman of Deloitte & Touche, LLP (Canada) and Alan Willis, a corporate sustainability advisor and former Deloitte partner, began to collaborate with us on this book and particularly on the strategic options available to companies to conform their business models to a net zero economy.
Jim and Alan provided critical strategic advice on the four transformational Pathways described in Part III, wrote an outline for each chapter in Part III, developed the questions for corporate directors and institutional investors to ask management about the Pathways included in the Appendices for Part III, and provided editorial input on Chapter 14, Telling the Net Zero Story. Their contributions to Net Zero Business Models were legion. They brought clarity and precision to the concept of the four Pathways and brought a unique combination of experience, wisdom, and levity to the writing process.
To help ensure the narrative voice of this book is authentic and credible, John decided to conform his life and consulting business to the net zero emissions economy to better understand the kind of transformation that this entails.
During the Covid‐19 pandemic, John had already reduced his flight miles from 50,000 per year to zero, curtailed his driving in an electric Chevrolet Bolt to 4,000 miles per year, and given up a small office in Point Reyes Station to work from home. John discovered, however, that he had a long way to go to conform his business and personal lives to a net zero emissions economy. John and his wife, Maggie, installed a solar power system and a rain catchment system to irrigate the garden. They replaced the remaining incandescent bulbs in their house with low wattage LED lights and are replacing a propane furnace that heats a radiant water heating system with a heat pump powered by the new solar system.
Mark and his wife, Susan, have been on a similar personal journey to create a smart and sustainable home. This included complete LED lighting with indoor and outdoor lighting automation and internet‐enabled thermostats to control heating and cooling, which resulted in improved energy efficiency and energy conservation for their home. Mark uses a 56‐volt electric powered lawnmower, leaf blower, and snowblower; all are powered by the Ontario electric power grid, whose power generation mix is 93% carbon free energy.
John enrolled in Being First's course: Leading Transformational Change. Being First's co‐founders, Dean and Linda Anderson, are two of the world's foremost experts on corporate transformation and co‐authors of Beyond Change Management and The Change Leader's Roadmap.1,2 Dean and Linda's life work helped us see that conforming a company's business model to a net zero economy will often require an epic transformation of the entire company. Their work helped us refine the narrative arc of Net Zero Business Models, provided us with many useful insights to frame some of the concepts in this book, and provided much of the foundation for Chapter 12, Preparing to Lead the Transformation.
The last three years also dispelled whatever residual skepticism John may have had about the reality of climate change. During the 2019 Kincade Fire that burned 77,000 acres in neighboring Sonoma County, John and Maggie were without power and water for six days and sheltered six evacuees and their six pets until they could return home safely. The Woodward Fire, which burned nearly 5,000 acres in the Point Reyes National Seashore in 2020, came within a mile of their house and put them on evacuation standby for three weeks. And 2021 was the second consecutive year of severe drought and brought water rationing to their hamlet. As we write this, a heat wave that brought record temperatures of 115°F (46°C) to Sonoma County is finally subsiding.
What really motivated us to write this book, however, was not the fires and drought but observing John's new greenhouse. Growing tomatoes in the cool, foggy coastal climate of Northern California is almost impossible. In his greenhouse, however, tomatoes thrive. The greenhouse gets so hot in the summer that they must open the windows and doors to prevent the tomatoes from wilting to death. His greenhouse made the urgency of our climate crisis real to us: there are no windows and doors in our atmosphere to let out the extra heat trapped by greenhouse gases as there are in John's greenhouse.
Today, we are excited to share this book and provide insights about best practices and direction for the global conversation about net zero and to help companies compete to win in the emerging global net zero emissions economy. We are optimistic that collectively we can innovate and transform the global economy into a net zero emissions one in time for our children, grandchildren, and future generations to inherit a habitable, healthy, and sustainable planet.
John Montgomery and Mark Van Clieaf
NOTES
1
. Anderson, D. and Anderson, L. (2010).
Beyond Change Management: How to Achieve Breakthrough Results Through Conscious Change Leadership
. San Francisco: Pfeiffer.
2
. Anderson, D. and Anderson, L. (2010).
The Change Leader's Roadmap: How to Navigate Your Organization's Transformation
. San Francisco: Pfeiffer.
FOREWORD
The concept of net zero has quickly evolved as the principal yardstick against which government policy ambitions and private sector activities on climate actions are proclaimed.
Propelled by the UN's Intergovernmental Panel on Climate Change (IPCC)'s conclusion from October 2018 that “limiting temperature rise to 1.5°C and preventing the worst outcomes of climate change implies reaching net zero emission of CO2 by mid‐century”—net zero has quickly moved from science to policy to mainstream in less than a decade.
Net zero pledges and commitments are everywhere—announced by two‐thirds of the world's governments responsible for more than 90% of global GDP and 80% of the world's population. Concurrently, the private sector with about one‐third of the largest publicly listed corporations representing annual revenues of more than US$25 trillion alongside the US$130 trillion Glasgow Financial Alliance for Net Zero (GFANZ) financial services coalition have announced net zero ambitions.
However, metrics and targets are not a plan, a commitment is not a long‐term business strategy—without the implementation of a credible and bona fide strategic transition plan. While the airwaves have been flushed with net zero announcements, accompanying strategic actions have been amiss.
The Climate Action 100+ Net Zero Company Benchmark in October 2022 showed 75% of focus companies had announced at least a partial net zero target, but only 19% had produced quantified decarbonization strategies and related business plans including Innovation, R&D, and CAPEX plans. Thus, the real merits of net zero are in the understanding of the strategic decisions, operational actions, cashflows, returns on capital, and strategic leadership capacity required by corporations over the next three decades, and especially during the 2020s, that will enable an orderly transition to a net zero global economy.
Net Zero Business Models creates such a robust analytical framework that will help corporations and investors analyze the required strategic decisions of the transition. The Five Core Eco‐Efficiency Processes outlines a set of the “must‐have” minimum requirements that any net zero transition plan must include to be comprehensive and a credible plan. The Four Pathways to Net Zero discusses and outlines the critical strategic business model choices facing every corporation's executive management and board of directors—their banking and insurance providers, as well as their existing and potential debt and equity investors.
The Three Domains of Systems Thinking outlines the strategic leadership capacity of the C‐Suite and Board required to transform business models, and in some cases, complete industry eco‐systems to net zero, while achieving a return on capital greater than the cost of capital.
In short, Net Zero Business Models presents an invaluable analytical framework built on insightful contributions from leading business strategy and finance experts along with sustainability practitioners in the real economy. It provides a playbook for corporate boards, the C‐Suite, and investors alike to evaluate and implement the optimal net zero transition strategies and plans that will create long‐term sustainable and competitive business models and assess whether companies are on the path to thrive, survive, or die.
Henrik K Jeppesen, CFADirector, ESG Implementation at Janus Henderson InvestorsCo‐chair of the Sustainable Investing Group at the CFA Society New York.
PREFACE
We wrote Net Zero Business Models to guide companies to transition successfully from an economy based on fossil fuels to a global net zero emissions economy. Net Zero Business Models is a primer, a toolkit for business model design, and a collection of best practices about how to conform a company's business model to a net zero emissions economy and achieve commercial success, including longer‐term shareholder and societal value.
We assume readers have accepted the scientific consensus that greenhouse gases are contributing to global warming and we must act to reduce greenhouse gas emissions to limit global temperature rise to 1.5°C. Our overarching vision for Net Zero Business Models is to facilitate and accelerate the transition to a net zero emissions economy, and, ultimately, to a regenerative economy and civilization so our children and grandchildren can thrive on a healthy planet.
To better understand the rapidly emerging global conversation, we conducted primary research, including conversations with over 100 C‐Suite executives, corporate directors, asset managers, asset owners, and other institutional investors representing over $50 trillion in assets under management. We also undertook secondary research, including reviews of key sustainability and climate‐related disclosures from over 200 leading Global 2000 companies with declared net zero aspirations. Net Zero Business Models provides companies with a research‐based framework to manage proactively and strategically the transformational forces facing every C‐Suite and board of directors.
Our research identifies that many companies grossly underestimate these pressures and the enormity of the scale of transformation required for them to conform their business models to a net zero economy. Most companies do not recognize the need to fully integrate reducing their greenhouse gas emissions with their fundamental long‐term business strategy.
Ultimately, we distilled a community of best practices for inventorying greenhouse emissions, setting science‐based emissions‐reduction targets, and creating credible and bona fide net zero transition plans that positively impact company valuation by effectively telling a company's long‐term strategy and net zero business model story. We also identified the best practices of our subject companies, including those listed on Appendix P.1, for effectively telling a company's net zero story. Net Zero Business Models provides strategic insights for companies, their executive teams, and their boards of directors about what leading companies with declared net zero aspirations are planning, investing in, and doing to conform their business models to a global net zero economy.
Our research reveals that companies are under increasing transformational pressure. On the one hand, asset managers, asset owners, and other institutional investors demand companies conform their business models to a net zero emissions economy while simultaneously generating positive returns for shareholders. On the other hand, policy makers, legislators, and securities regulators increasingly are adopting policies and regulations to direct companies to reduce their greenhouse gas emissions and report on them. Within the next two years, the newly formed International Sustainability Accounting Standards Board, the U.S. Securities and Exchange Commission, and the UK's newly formed Net Zero Taskforce all will establish new mandatory disclosure standards for sustainability and climate reporting integrated with financial reporting. These pressures subject companies and their business models to material market and regulatory pressures and risks that will continue to increase.
We also wrote Net Zero Business Models to help frame and direct the global conversation about net zero emissions, net zero emission business models, the transition to a net zero emissions economy, and, ultimately, the transition to a net zero emissions civilization. The prevailing conversation is challenged not only by a lack of a common pattern language but also by an overly simplistic focus on regulating, measuring, monitoring, auditing, and reducing emissions of greenhouse gases. Net Zero Business Models provides a common pattern language and highlights the larger, strategic, and systems implications of reducing greenhouse gas emissions as part of a net zero business model transformation, the creation of a sustainable model for capitalism, and the transformation of civilization itself.
The transition to a net zero economy will compel companies to choose one of four strategic options to achieve a net zero business model. We call these four strategic options the “Pathways,” which are discussed in Part III of this book (see Exhibit P.1). Pathway One allows a company to maintain its current business model and achieve net zero with the eco‐efficiency processes and systems. Pathway Two requires companies to transform their core business models to achieve net zero. Pathway Three is about creating new net zero business models through new ventures, spinouts, and startups. Pathway Four challenges companies to lead the net zero transformations of their industries and related industry ecosystems. Of course, a company could continue with business as usual and do nothing to reduce its emissions, but risks getting left behind and becoming a casualty in the transition to a global net zero economy.
The appropriate strategic choice for a company depends largely on the magnitude of its greenhouse gas emissions. If a company has relatively low emissions, it may be able to preserve its existing business model with relatively minor adjustments. If a company has relatively high emissions, it may have to transform its business model to achieve net zero or risk ultimately having to wind down and liquidate because its competitors achieve net zero first, leaving it behind. Net Zero Business Models provides a comprehensive toolkit to guide companies to analyze their businesses to make the appropriate strategic choice to become a winner in the global net zero economy.
Transforming a business model to align with a net zero economy will be a larger transformation initiative than most companies realize. Successfully transforming a company's business model requires a team of talented executives with the appropriate strategic and systems‐thinking capacities to handle the complexity of the transformation. Every company is unique, however, and there is no prescribed formula to develop its net zero transition plan. Boards of directors need sound board processes to transform their companies' business models and navigate the transition to a net zero emissions economy. Net Zero Business Models provides insights from quantitative and qualitative research into the required processes, benchmarks, and reporting that will empower boards of directors and executive management teams to lead their companies successfully into a net zero world.
EXHIBIT P.1The four Pathways to success in the global net zero economy.
Unfortunately, most corporate transformations fail because they focus on process without also addressing the underlying fundamental mindsets and cultural assumptions that propel the behaviors and systems necessary to drive the transformation. The leaders of a company's net zero transformation initiative need to understand the hidden dynamics of transformation so they can successfully lead it. Net Zero Business Models explores some of these dynamics, including some of the hidden determinants of corporate behavior such as the doctrine of shareholder primacy and neoliberal economics. These dynamics may impede a company's ability to conform its business model successfully to a net zero economy in time.
Finally, Net Zero Business Models provides a preliminary roadmap for the second leg of the transformational journey to a regenerative global economy and regenerative civilization. Achievement of a net zero emissions economy is only the first step in the journey to create a regenerative economy that reverses the global warming caused by the fossil fuel–based economy and restores the biosphere to lower levels of greenhouse gases. Climate change will only continue to accelerate, and its effects worsen, until we achieve net zero emissions. Temperatures will only stabilize if we can reverse the damage by achieving net zero and sequestering the carbon we have emitted into the atmosphere. The transition to a global net zero emissions economy paves the way for the further transition to a regenerative civilization based on care for each other and our planet that will provide a stable long‐term basis for the global economy.
INTRODUCTION: HOW TO USE THIS BOOK
The primary purpose of Net Zero Business Models is to prepare companies, their executive teams, and their boards of directors to compete successfully and win in the net zero emissions economy. Net Zero Business Models outlines a process to conform a company's business model to a net zero emissions economy and be commercially successful.
In the context of the net zero economy and this book, a company that is commercially successful enjoys positive revenue growth, funds operations and capital expenditures internally, and produces an economic profit greater than the cost of capital over the timeframe needed to attain net zero emissions. (See Exhibit I.1.) Net Zero Business Models provides a framework for companies to use to develop their net zero transition plans to be among the winners in the transition from an economy based on fossil fuels to a zero‐emission one, which we call the “Great Transformation.”
Although we wrote Net Zero Business Models primarily for officers and directors of public companies, the book is useful for asset owners, asset managers, and other institutional investors who need to discern whether their portfolio companies have credible and bona fide net zero transition plans or are just greenwashing.
Net Zero Business Models provides asset owners, asset managers, and other institutional investors with useful frameworks to analyze how well their portfolio companies are progressing toward net zero and managing the related risks and opportunities so they can invest in the winners in the race to net zero. Net Zero Business Models will also assist commercial banks and other lenders in the risk and credit modeling of their lending and credit portfolios.
Net Zero Business Models is useful for regulators and policymakers trying to make sense of the conversation about net zero. The frameworks provided in the book can inform them about how to enact smart regulations, policies, and net zero disclosure standards to accelerate the transformation first to a net zero emissions economy and then to a regenerative economy.
EXHIBIT I.1Winning business models: commercial and net zero success
Net Zero Business Models is useful for entrepreneurs and venture capitalists starting new companies in the net zero economy. New companies will have a competitive advantage in the net zero economy if they incorporate their companies with net zero, and circular, business models from the beginning. Net Zero Business Models provides entrepreneurs and venture capital investors with frameworks to design companies for success in the net zero economy and beyond.
Net Zero Business Models is useful for management consultants, accountants, lawyers, and other professional advisors counseling corporations about how to transition their business models to a net zero emissions economy. Finally, the book is useful for academics teaching courses about sustainable business in business schools and universities.
The book is organized into five parts. Part I sets the context for net zero business models. Part II lays the technical foundation for the four strategic pathways to achieve net zero described in Part III, which we call “Pathways.” Part III introduces the heroes of the book, the four net zero Pathways. Part IV suggests how to put the four Pathways into action. Part V suggests how the creation of a net zero economy may be part of a larger transformation to stakeholder capitalism and a more just, inclusive, and regenerative civilization that takes care of the planet and the well‐being of its citizens.
PART I: SETTING THE CONTEXT FOR NET ZERO
Part I sets the overall context of the Great Transformation and the business case for having net zero business models that achieve commercial success.
Chapter 1 identifies the key transformational forces driving the Great Transformation. These key forces include the changing expectations and demands of customers, institutional investors, and other stakeholders on the one hand and materially changing carbon policies and prices, legislation, and regulations on the other. These forces put business models under tremendous transformational pressure. This pressure will only intensify as the decade progresses to the critical 2030 milestone of reducing greenhouse gas (GHG) emissions by 50% and the effects of climate change continue to worsen.
Chapter 1 also introduces some of the key terminology relating to net zero and discusses the business opportunities inherent in the transition to a net zero economy.
PART II: THE TECHNICAL FOUNDATIONS OF NET ZERO BUSINESS MODELS
Part II provides the technical foundation to help companies critically assess business models in the context of the Great Transformation. The global conversation about GHGs and the transition to a global net zero economy is largely focused on the technical subject matter of Part II.
The material in Part II will be familiar to companies that already have inventoried their GHG emissions, determined their carbon shorts, and set near‐term and long‐term science‐based emissions‐reduction targets. Executives from these companies can use Part II as a reference and jump ahead to Part III to explore the Pathways.
The material in Part II will be particularly useful for the 71% of companies that have not inventoried their GHGs completely or have conducted only partial inventories of them.
Chapter 2 introduces the Greenhouse Gas Protocol and the GHG Corporate Accounting and Reporting Standard (GHG Protocol) and Scope 1, 2, and 3 emissions.1 Scope 1 and 2 emissions generally are easier for companies to quantify because they fall under their immediate control. Scope 3 emissions are more challenging to quantify because they are emitted in companies' value chains and are not under a company's immediate control. Scope 3 emissions have 15 categories and require companies to collaborate with their value chains to quantify them.
It is important to acknowledge that the GHG Protocol is far from perfect and has some detractors, but it has emerged as the global standard for GHG corporate accounting, performance measurement, and reporting.
Chapter 2 is the most technical chapter of the book, but its content is critical to understanding greenhouse gas emissions. This understanding will provide a base of foundational knowledge that allows companies to inventory their emissions, develop targets to reduce them, and choose a Pathway to achieve net zero. To win in the net zero economy, a company's greenhouse gas inventory must include all Scope 1, 2 and 3 emissions.
Chapter 3 will help companies determine their carbon intensity and assess their vulnerability to a carbon shock in the form of a carbon tax or fee. Some jurisdictions, such as Canada, have already adopted an escalating carbon tax on CO2 emissions. Other jurisdictions such as California and the European Union have adopted so called “cap‐and‐trade” regimes, which set yearly allowances on emissions that effectively create a carbon price through trading. Understanding the carbon intensity of a company's current business model and exposure to potential carbon shocks in the various jurisdiction in which it operates helps it set strategy and conduct effective scenario planning.
Companies need to understand not only their absolute GHG emissions profile but also the potential business risks that GHG emissions pose to future revenues and profits. Understanding a company's carbon intensity using the key performance indicator of metric tons of CO2 equivalent (CO2e) GHGs per $1 million of revenue provides strategic insight to compare emissions performance across products and business units and with its competitors and industry sector. A company's business model, when stress‐tested for a carbon fee of $75 or $100 per metric ton, may simply no longer be viable economically in its current design and at its current level of emissions.
Chapter 4 introduces the Science Based Targets Initiative (SBTi) and science‐based emissions‐reduction targets. This chapter will help companies set near‐term and long‐term emissions‐reduction targets, which may be verified by the SBTi. These targets are complemented by their eco‐efficiency targets discussed in Chapter 5 and their other emissions reduction–related goals. For example, an automobile manufacturer may set targets to have 5 electric vehicle models by 2025, 20 models by 2030, and an entirely electric vehicle product line by 2035.
It is important to acknowledge that the SBTi Corporate Net Zero Standard is far from perfect and has many detractors, but it is emerging as the global standard in setting science‐based emissions‐reduction targets.2
PART III: THE FOUR PATHWAYS TO NET ZERO
Part III presents the four strategic Pathways to conform a company's business model to a net zero economy and takes the global conversation beyond GHGs into strategies to design net zero business models. The Pathways provide a framework to analyze a company's current business model to identify the gap between its current state and the desired future net zero business model design. This analysis determines the magnitude of change required to conform its business model to a net zero economy and be commercially successful. This strategic analysis will also reveal whether its business model needs to be modified incrementally or completely redesigned and transformed.
The Pathways present integrated strategies that align a company's journey to net zero with commercial success and fully integrate the transition to net zero with a company's overall business strategy. The winners in the Great Transformation will focus on finding opportunities on the journey to net zero to innovate and create value. On the other hand, the losers and laggards, as casualties of the net zero economy, will focus on defending their existing business models and product portfolios. In other words, the journey to net zero provides a strategic opportunity for companies to create competitive advantage as measured by premium returns on capital after the cost of capital and the future cost of carbon.
The sooner a company analyzes its existing business model and carbon intensity and chooses the optimal strategic Pathway, the better. If a company is an early adopter of an effective net zero business model in its industry, it may garner a competitive advantage, earn a sustainability valuation premium in its enterprise value through better environmental, social, governance (ESG) performance, and become an industry leader.
Chapter 5 provides an overview of each of the four Pathways. The Pathways progress from low to high strategic planning complexity and from maintaining the current business model to leading an industry‐wide transformation.
Chapter 6 provides an overview of Pathway One: Eco‐Efficiency. Companies that choose Pathway One maintain their current business models and achieve net zero through eco‐efficiency business processes and systems. Pathway One is best suited for companies that have low carbon intensity. Some companies with higher carbon intensity may choose Pathway One to defend their existing business models and try to achieve net zero through eco‐efficiency business processes and systems and by using carbon offsets, carbon credits, and carbon capture.
Chapter 7 provides an overview of Pathway Two, Option One: Incremental Business Model Transformation—Zero‐Carbon Products and Services. On this version of Pathway Two, companies create a portfolio of zero‐emission products and services. Companies innovate to not only reduce the carbon footprint of their existing products and services but also to develop or acquire new breakthrough, zero‐carbon businesses, products, and services.
This version of Pathway Two is transformational because it requires companies to reassess the fundamentals of their core business models and to restructure and transform their entire portfolio of products and services to achieve zero emissions.
Chapter 8 provides an overview of Pathway Two, Option Two: Complete Transformation of the Business Model. Companies that choose this version of Pathway Two innovate not only to create a portfolio of zero‐carbon emission products and services but also to let go of their current business models, which are the basis of their success in the fossil fuel–based economy.
This version of Pathway Two increases the magnitude of transformational change required because it requires companies to transform their business models completely. Companies often reinvent the fundamental purposes of their businesses to reflect a brand‐new business model.
Chapter 9 provides an overview of Pathway Three: Eco‐Startups, New Ventures, Spinouts, and Industry Disrupters. Companies that choose Pathway Three create an entirely new net zero business. An established company on Pathway Three might spinout, create, or acquire an independent business with a net zero business model and low‐ or no‐carbon footprint. New startups and new ventures on Pathway Three create new net zero business models with low or no GHG emissions.
Companies on Pathway Three have an advantage because there is no legacy businesses, assets, or processes to be modified or transformed. Pathway Three companies are built to succeed in the net zero economy from the start.
Chapter 10 provides an overview of Pathway Four: Industry Ecosystem(s) Transformers. Companies that choose Pathway Four face an even larger transformational change than those on Pathway Two, Option Two because they choose to lead the transformation of their entire industry and its related ecosystem(s). Any Pathway One, Pathway Two, or Pathway Three company could choose to lead the transformation of its industry to achieve net zero.
