Net zero transformation is a new paradigm for corporates

09 August 2022 5 min. read

Net zero represents a new paradigm for corporates, bringing both threats and opportunities, write Hasan Shafi and Lucas Pedevilla from global management consultancy Arthur D. Little.

GCC countries have ushered in a new era with their commitment to achieving net zero emissions. Two of the largest oil and gas producing nations, Saudi Arabia and the United Arab Emirates, have made the bold pledge of delivering net zero commitments, while at the same time creating new economic outcome for the countries. Bahrain has also followed suit.

Given the rapidly changing ecosystem, net zero represents a new paradigm for corporates, bringing both threats and opportunities.

Hasan Shafi and Lucas Pedevilla, Arthur D. Little

In order to succeed in the net zero paradigm, it is of paramount importance that companies work on proactively shaping the new reality rather than reacting to it. Timing is key and a first mover advantage may prove vital to avoiding being left behind, as happened to many companies at the onset of the internet and digital era.

Simply put, companies should not just adapt, but rather shed their skin and recreate to thrive.

For companies and their CEOs, the time to act and start delivering outcomes is now. For those who wait for the upward “S” curve post-interim timelines such as 2030 before delivering on emissions reduction pledges, it will be too late.

It is vital that company CEOs and their management teams develop well-thought-through plans to be able to deliver on the net zero promise. The key question is, how will companies – particularly those in asset-intensive sectors – grow inside a carbon-constrained world?

The way forward

To chart the course for success, CEOs and company leaders need to ask five defining key questions:

  • Objectives: How can I deliver on the dual objectives of delivering shareholder returns, while at the same time aggressively driving decarbonization outcomes?
  • Core and new businesses: What is the optimal mix of my current core business – where driving down emissions is key – and the new, sustainable and attractive future profit pools?
  • Technology investment: How aggressively should I be investing in technology ahead of the curve to create future competitive advantage?
  • Transformation:  How should I reconfigure and transform business models, operations, supply chains, and customer value propositions in light of the transition?
  • Stakeholders:  What do I need to do to bring my key stakeholders – customers, suppliers, ecosystem players, government, employees – along with me on the transition journey?

Research by Arthur D. Little into the issue of delivering on the dual promise along with discussions with senior leaders in asset-intensive sectors have led us to conclude that there is a need for a new paradigm in order to deliver growth in a net zero environment. This new paradigm will require companies to:

Start with the customer
Leverage deep understanding of the customer and their supply chains and work jointly to solve their emissions issues. Companies have been looking to generate deep customer insights and increase the customer share of volume or expenditure for a very long time.

Now is the moment to leverage that insight and relationship, turn the table, and jointly develop technology solutions to help the customer to reduce emissions. Such an approach is also not new, so companies need to double down their efforts.

Put technology at the core
Typically, companies develop Marginal Abatement Cost (MAC) curves to assess technologies which can be deployed into their operations from a carbon emissions reduction point of view. Companies now need to shift the lens on typical MAC curves for technologies and identify business growth opportunities using the latest tech.

Moreover, there are low-carbon / negative-carbon technologies at various stages of maturity and development. Companies need to explore, understand, and assess these technologies for their future growth and value creation potential.

Further reading: How enterprise technology can accelerate net zero ambitions.

Accelerate new business models
In the net zero world of the future, new business models will open up new growth opportunities for companies. For example, organizations can provide sustainability / net zero as a service to customers, such as carbon removal and storage as a service. Converging sustainability with the rise of digital will also create opportunities for sustainable tech- or green tech-type platform business models.

Companies can explore creating a digital platform that brings together an ecosystem of buyers and sellers of net zero-related products and services, and that, through the network effect, can continue to create and capture future value.

Align internal agendas
In order to succeed in this new paradigm, net zero should be at the heart the companies’ business. To achieve this, it is important to align the agendas of both the management and the employees. First, the type and horizon of incentives should be aligned and commensurate with what companies are trying to achieve.

By the same token, corporates should work to increase awareness of the new objectives to remove scepticism, increase endorsement, and ensure everyone is pushing in the same direction.

CEOs who may be contemplating such a path for company transformation need to adopt an “ambidextrous” operating model, which allows them to drive structural and emissions-related opportunities in the core business while developing and delivering innovative net zero services for their customers.

About the authors: Hasan Shafi is a partner at Arthur D. Little, where Lucas Pedevilla is a principal. Both are based in the firm’s Middle East division.