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Decarbonization is accelerating: What it means for your company

President Biden is proposing cutting US greenhouse gas emissions by 50 to 52% from 2005 levels by 2030, moving up the timetable.

Emissions-reduction pledges from world leaders last week set the stage for a renewed push to coordinate globally on climate. Companies shouldn’t miss the significance of this moment. In the United States, while formal proposals for legislation and policies to support the lowered target have not been presented, leading companies will take the signal to seize the opportunities from accelerated decarbonization.

The more aggressive US decarbonization goal reinforces our belief about the acceleration of net zero or carbon reduction commitments and the wide-ranging impact of these initiatives.

Half of Fortune 500 companies now have made either net zero or carbon reduction commitments. Consider these other market signals:

  • Intensifying investor interest: Capital dedicated to impact funds is growing. Groups like Climate Action 100+, representing $54 trillion assets under management, and the Net Zero Asset Managers initiative, representing $37 trillion assets under management, are adding to the urgency as they advocate for evidence of commitments. Investors, like debt rating agencies, insurers and lenders, are developing ways to compare corporate climate strategies as well as physical and transition risk profiles. 
  • Greater availability of financing: US companies looking to fund expansion in sustainable business are finding ready partners in the capital markets. PwC projects global green bond issuance will increase by over 40% to top US $500 billion this year. Investments in renewable power alone reached $281 billion in 2020.
  • Changing capital allocations: Large companies are ramping up investments in renewable power and clean products and technologies, whether they’re asset-light or based in traditionally large, direct-emitting industries. This is leading to the development of lower-carbon products and solutions for customers as well as new requirements for suppliers, such as greenhouse gas (GHG) emissions disclosures.
  • Shifting supply chain strategies: Operations leaders are looking ahead to tackle the demands of a lower-carbon world. When asked about their top 2021 priorities, 40% cited advancing environmental, social and governance (ESG) strategies like lowering GHG emissions, according to a March 2021 PwC survey of US COOs. These leaders are looking for ways to respond to a series of disruptions since the onset of the pandemic and, at the same time, move with major customers shifting between higher and lower options in their supply chains.

Meaningful decarbonization action today can have broad and long-term impacts on your business

President Biden’s pledge enhances the signal that changes are coming throughout much of what you do. Proactive companies can seize opportunities to grow their market share and increase their profitability with products and solutions that meet low- or carbon-free demands. 

Moreover, reporting and compliance requirements are expected to grow. Regulatory agencies will play a big part in implementing the Biden administration’s climate goals. CFOs across industries are stepping up efforts to gather and validate ESG data and identify frameworks and metrics for reporting, according to our March 2021 US Pulse Survey. As ESG reporting continues to evolve, companies that progress faster than others—for example, using ESG data insights to inform strategic decisions—will race ahead. 

Steps to take

Every commitment made by a CEO, institutional investor or government to reduce GHG emissions rests on the premise that every organization is capable of coming to a clear understanding of the sources and intensity of those emissions, and that they can act on it to reduce their share over time.

To support companies on their journeys, PwC has defined nine key building blocks necessary for a successful decarbonization transformation. Regardless of the ambition of your organization, all approaches to GHG reduction begin with the first three building blocks:

1. Establish a baseline (and reduction target) for GHG emissions

This is often referred to as the GHG inventory. Companies will typically assess emissions for a year, setting a baseline to track progress in reductions over time. The more ambitious the goal, and with net zero commitments specifically, the more the exercise broadens to identify emission sources across their value chain. Reduction targets will drive companies to look for ways to make changes across geographies, product lines, the supply chain, downstream in logistics, product use or end of life. A value chain-wide GHG footprint is essential to baseline impact and to translate the net zero implications into business-specific parameters. The assessment should have an executive sponsor and audience but can be driven by the sustainability function, whose team members are familiar with these assessments.

2. Assign responsibility for oversight

Transitioning to a low-carbon economy will impact every company in a different way. The goal of GHG reduction within imperatives to attain positive returns on overall transformation initiatives will require strong governance, starting from the top. Companies can begin by consulting publicly available sources of information for effective climate governance. The FSB Task Force on Climate Related Financial Disclosures (TCFD) and WEF Climate Governance Principles and Guiding Questions may help build an understanding of the key issues. As a company matures, senior leaders should reevaluate any existing incentives that may hinder progress and consider creating incentives that assist management in delivering on milestones and targets.

3. Align the corporate strategy with the climate strategy

Leading decarbonization commitments have certain attributes: They are science-based. They take responsibility for tackling value chain emissions including those of suppliers, products, services and investments. They also explicitly recognize that net zero requires a reshaping of corporate strategy and in turn, a company’s operating and financial model. And they allocate substantial funding for skills, innovation and R&D. It will be important to assess market dynamics to ensure both upside opportunities and downside risks are captured to understand net zero implications on business growth and where reshaping or reinvention is needed. Those who lead the transition will move from defense to offense sooner and lead the creation of new markets.

Public policy affects the pace of change, but not the path

The Biden administration is targeting carbon pollution-free electricity by 2035 and a net zero emissions US economy by 2050. Beyond regulation, President Biden is deploying other policy tools, including executive orders, a push to integrate climate resilience into its infrastructure proposals and rejoining global efforts to fight climate change.

  • The administration’s $2 trillion plus infrastructure proposal, the American Jobs Plan, in part aims to accelerate reductions in US GHG emissions. Congress is taking up the plans for consideration, including $100 billion for upgrading the US electric grid and establishing a standard to increase electricity generated from clean sources. Tax proposals include incentives for carbon capture and cleantech.
  • If enacted, the wide array of proposals likely would encourage investment in lower-carbon technologies and other elements of infrastructure intended to move the economy toward decarbonization goals. However, as proposed, these incentives would have significant costs, and President Biden proposes to finance the cost of his proposals with broad tax increases on businesses that could impact business investment and employment in other parts of the economy.
  • President Biden also released his Climate Finance Plan last week. It seeks to eventually double US financing for climate-related programs in developing countries and put limits on international investment in fossil fuels. The plan also calls for “defining, measuring, and reporting US international climate finance” by including more detailed reporting, tracking finance for vulnerable populations and enhanced reporting on mobilization and climate impact. In addition, the administration is preparing an executive order that will direct the Office of Management and Budget to develop a strategy for climate risks facing federal agencies, according to reports.
  • The SEC has a new heightened focus on disclosures about climate change. The agency is responding to the increased disparity between public statements and what’s included in regulatory filings with increased attention on the quality and adequacy of disclosure.
  • Some states have already taken action: For example California announced plans in 2020 to reduce gasoline-powered transportation with an order that requires new cars and passenger trucks sold in the state to be zero-emission vehicles by 2035.

Real decarbonization is a business model shift

We believe the most prepared companies are investing in the capabilities needed to capture the coming opportunities. They are integrating decarbonization building blocks into their operational and financial strategies, enhancing governance to drive desired outcomes and investing in new products and services to meet the changing needs of customers. In so doing, they are demonstrating leadership in this evolving economy. 

PwC has a large team of professionals with expertise in the standards, methodologies and technologies that can help your company move from ambition to action in the decarbonization transition.

Contact us

Casey Herman

US ESG Leader, PwC US

Ron Kinghorn

ESG Consulting Solutions Leader, PwC US

Kevin O’Connell

ESG Trust Solutions Leader, PwC US

Abigail Paris

Climate/Net Zero Director, PwC US

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