COP29 highlights need for urgent climate action, worry on 'too much, too late' measures
Achieving climate goals across all physical assets worldwide could need up to $9t yearly by 2050.
Global temperatures on track to exceed 1.5°C and global insurance losses from natural catastrophes poised to go over $135b this year underline the urgent need for accelerated action to meet key climate goals, McKinsey reported.
Despite setting ambitious targets for 2030, most countries and companies remain behind schedule, sparking concerns that the measures that will be enacted in the coming years may be "too much, too late,” it added.
At the 29th Conference of the Parties, the urgency of financing climate initiatives was a central topic. However, debates revealed challenges in aligning stakeholders, with the final agreement setting a financing goal of $300b per year from developed to developing nations—far short of economists' estimated requirement of $1t annually.
McKinsey suggested that achieving climate goals across all physical assets worldwide could demand up to $9t per year by 2050.
The conference also highlighted the complex geopolitical and macroeconomic environment impacting sustainability efforts, it added.
Rising interest rates, inflation, energy supply shocks, and nearshoring pressures have added layers of uncertainty. Regulatory clarity, considered critical for spurring climate action, remains inconsistent, with concerns about potential delays or reversals of key regulations.
Startups and private investors view sustainability as a significant business opportunity, but they face challenges such as limited funding availability and a need for near-term paths to positive cash flow, McKinsey said. Many are turning to innovative financing mechanisms, such as blended finance, or looking forward to more mature carbon markets to attract investments.
Industries like oil, gas, and power, which are well-placed to decarbonise, are struggling to make a business case for new technologies such as carbon capture and hydrogen, McKinsey noted. Meeting investment hurdle rates remains a challenge, forcing these companies to rethink business models, forge partnerships, and explore innovative solutions to cut emissions.
Some companies aim to lead on sustainability to gain a competitive edge or respond to customer and employee expectations. Yet, geopolitical developments and regulatory uncertainties often derail progress, requiring these businesses to reevaluate their strategies and accelerate execution through enhanced resourcing and operational efficiency.
Regardless of their stance, McKinsey urged all companies to take a “reality check” on their sustainability strategies, reflecting on how changed assumptions and increased volatility could impact their goals. Updating these strategies, creating future scenarios, and maintaining flexibility in execution were recommended to stay on track with climate commitments.
McKinsey emphasised the importance of industrialising climate technologies, noting that 12 key technologies could deliver 90% of the required emissions abatement. Technologies such as solar and wind power are already cost-competitive, but scaling newer technologies to achieve cost parity with fossil fuels remains critical.
Once technologies move beyond the lab stage, McKinsey observed that unit costs can often be halved through scaling efforts.
Companies that succeed in scaling these technologies must focus on operational and commercial execution, as McKinsey noted that many organisations underestimate the effort required for cost reduction during scaling. Teams with prior expertise and a disciplined approach to best practices in supply chain management, construction, and operations are essential to de-risk execution and achieve efficiency.
To meet climate goals amidst increased volatility, McKinsey recommended exploring collaborative approaches within ecosystems, leveraging digital tools, and committing to rigorous execution. Speed, cost efficiency, and securing long-term agreements for scaled technologies will be pivotal to staying on track with decarbonisation whilst simultaneously driving business value.
Although the path forward is fraught with challenges, McKinsey said robust strategies, operational discipline, and strategic collaboration can help businesses navigate uncertainties and seize opportunities in the global sustainability transition.
