Commercialised sustainability 

Many low-carbon alternative products, particularly in the industrial sector, still come at a cost premium of 50% or more. As these new technologies scale and government intervention continues, declining cost premiums will create opportunities for companies to pioneer green markets.

Winning in Green Markets: Scaling Products for a Net Zero World, a report published by the World Economic Forum (WEF) in collaboration with Boston Consulting Group (BCG), examines how companies can commercialise sustainability by finding, creating, and shaping green markets.

“This decade has the opportunity to see a massive scale-up of climate solutions and the creation of large markets for low-carbon materials, products, and services,” says Antonia Gawel, head of climate change at the WEF. “Business and government have a critical role to play to provide the capital, technology, policy, and legislation to meet our climate goals on time. This year’s annual meeting in Davos convened these leaders to accelerate climate ambition and investment.”

According to the report, as green technologies scale, cost premiums will decline or even disappear altogether, with the pace of cost parity depending on location and government policies. Meanwhile, early movers must find a way to offset higher costs and transform the “green cost premium” into a “green revenue premium” by translating lower emissions into a business value.

Demand for green materials and services increasing

A June 2022 BCG sustainability consumer survey showed that while less than 10% of consumers choose sustainable products to “save the planet”, this number increases roughly two to four times (to between 20 and 43% of consumers) when sustainability is linked to other benefits such as health, safety, and quality.

The leaps to roughly 80% when barriers such as convenience, lack of information, and cost are addressed. Based on these consumer trends, coupled with increasing government action and pressure to act from employees, investors, and other stakeholders, companies can build a compelling business case for the development of green options. For early movers, there is a largely untapped and rapidly growing market willing to pay for green products.

As of November 2022, 1 957 companies had set certified science-based emissions reductions targets, while a further 2 103 had committed to setting these targets. A recent survey of 81 members of the WEF’s Alliance of CEO Climate Leaders found that while almost half were already paying a green premium for at least one input, most were not increasing base material costs to consumers. Reasons cited for absorbing higher costs included: investment in overall sustainability goals, securing access to inputs critical to capturing or expanding share in a promising new market, and hedging against future climate legislation.

Turning ambitious decarbonisation commitments into customer value

As upstream companies struggle to shape a de-commoditised market, downstream players still struggle to develop net-zero products that will be compelling to consumers. The report details six actions companies must take to commercialise sustainability:

• Design a target portfolio of green offerings for a net-zero world
• Shape value propositions based on these green offerings
• Engage with customers on green products
• Create a green pricing strategy
• Develop the corresponding market environment
• Transform to thrive with key enablers across the business

“The benefits of climate action are clear, and the costs of inaction pose a threat to all of humanity,” says Patrick Herhold, report co-author and a BCG managing director and partner. “Decisive corporate action has become an imperative and an opportunity to not only lead in a growing market but to create and scale the green markets that will transform our economy.”