Wednesday, October 4, 2023

Global consortium focuses on sustainability to build resilience


Sustainability is increasingly becoming a key factor for global organisations. Here’s how and why.

Amid severe climate events, a still-smouldering pandemic and a tragic war in Europe, McKinsey launched the Resilience Consortium. The consortium is a catalyst for coordinating public- and private-sector efforts to build and strengthen resilience. Leading organizations have joined the consortium steering committee, which the World Economic Forum and McKinsey & Company support. Sustainability is one of the critical issues the consortium addresses, with a specific focus on energy independence and alternative energy strategy. The cost of not acting on this agenda could be as high as losing 5% of the global GDP.

New capital needed to achieve net-zero

The consortium recognizes the need to develop new sources of capital to invest in net-zero opportunities. Both public and private sector organizations should invest in a diversified portfolio of promising opportunities in an approach to the green energy transition akin to a private-equity firm. A recent SwissRe report found that the investment gap has been closing, but slowly.

At the current pace of investments, net zero would be attainable only by 2069 – almost 20 years behind the target. Capital deployment towards net zero will require investments in new minerals and materials, equipment and processes, technology, more adaptive supply chains, and green business opportunities. Leaders should invest now as the untapped net-zero opportunity could become a market worth trillions by 2030.

Energy independence to build resilience

A World Economic Forum (WEF) whitepaper emphasizes that actions must be taken on multiple fronts, including climate, food and energy, education, healthcare, economic development, trade and supply chains, technology and finance. Attaining energy independence and availability requires diversifying energy sources and accelerating the use of renewables and clean power. Organizations should invest in grid electrification and acquire needed new minerals and materials while improving the diversity of sources and supply chains.

The colossal cost of no-action

The paper puts forward the “resilience agenda”, consisting of frameworks for the private and public sectors to evaluate and improve their resilience strategies continuously. The cost of inaction is high: research shows that in specific sectors or countries, the consequences of action or inaction can be plus or minus 15% in GDP performance, making it a crucial effort for leaders to align and act in the face of ongoing disruption.

Leaders recognize resilience as the imperative condition for securing a sustainable, inclusive future in a world of continuous, overlapping disruptions. At the World Economic Forum Annual Meeting in Davos in May 2022, government, business, and non-profit leaders came together and rallied around this theme.

Public-private participation

The Resilience Consortium emphasizes that resilience building must be accomplished jointly and in a coordinated effort by the public and private sectors. The coordination must extend as well across the resilience areas. These have become deeply inter­connected in ways that are not always apparent until crisis strikes. One must therefore explore the interconnections and the vulnerabilities they might hide to ensure that efforts in one resilience area are aligned with the goals in the others and accelerate progress towards them.

Cost of failure is 1%-5% of GDP

The resilience agenda identifies necessary actions and proposes deeper collaboration across the strategic resilience areas. It also discusses how organizations can build resilience “muscle”—the enablers needed to endure crises and pivot into growth. In a previous paper, McKinsey estimated that the cost of failure to build resilience is between 1 and 5 per cent of the annual global gross domestic product (GDP). Leading research shows that in the coming decades, action or inaction on these resilience areas will affect GDP growth by plus or minus percentages that translate into trillions of dollars. When measured in terms of the quality of human life—or its very preservation—the values are much higher.

Orderly energy transition

The paper underscores net zero as a key driver for a sustainable model that is also resilient. To ensure sustainable and inclusive growth, organizations need a mindset towards the power of “and”; that squares resilience and net-zero commitments. This will mean relying on existing energy assets for a time, though to a diminishing extent, as they are repurposed and increase the share of renewables. Measures need to be taken to reduce uncertainty and enable an orderly, affordable and secure transition to a net-zero economy and food security.

The paper emphasises that energy independence and availability require diversifying energy sources and accelerating the use of renewables and clean power. It calls for organizations to invest in grid electrification and acquire needed new minerals and materials while improving the diversity of sources and supply chains.

The consortium focuses on a minerals transition as an essential factor in the energy transition play. It points out that energy transition is also, by definition, a materials and minerals transition. Among other things, this means reliance on certain scarce minerals produced in only a few countries will have greater importance: demand for some rare earth minerals is already greater than the available supply. Addressing such challenges requires R&D investment to find substitute minerals, accelerate materials recycling and rethink supply chains.

The First Movers Coalition

The First Movers Coalition, a WEF initiative, harnesses the purchasing power of companies to decarbonize industrial sectors and to send a powerful market signal to commercialize zero-carbon technologies. Over 50 companies that make up The First Movers Coalition attempt to harness the purchasing power of companies to decarbonize industrial sectors and to send a powerful market signal to commercialize zero-carbon technologies.

To jump-start, the market, the coalition’s members commit in advance to purchasing a proportion of the industrial materials and long-distance transportation they need from suppliers using near-zero or zero-carbon solutions, despite the premium cost.

In addition to the advance purchase commitments that our members have made, our members also pledge to work together to address roadblocks towards securing the supply of required low-carbon technologies by 2030. The Coalition will connect members with financial players, suppliers, and other value chain partners. In doing so, the FMC will further ensure the development of critical technologies and power our net-zero future for years to come.

However, the confluence of crises and disruptions that have been experienced demands nothing less; the paper concludes with a call to action. The world must act now on this agenda, building on the collective momentum of recent ongoing work by many organizations to repair and improve societies and economies.

Also Read: Geopolitics & sustainability: The twin challenge for CEOs


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