Managing Director & Senior Partner; Global Leader, Climate & Sustainability Practice
Hamburg
Key Takeaways
There is a major value-creation opportunity in building green businesses, but a number of complexities stand in the way. To surmount those hurdles, CEOs should:
- Identify the right business model based on factors such as the target customer base, the offering’s value proposition, and the potential to scale.
- Tap into new sources of capital, including government and catalytic funding.
- Leverage existing assets, including robust R&D engines, proprietary intellectual property, brand equity, and industry-specific relationships.
When it comes to investing in new green businesses, CEOs tend to have clarity on the “why.” Less understood, though, is the “how.”
The list of reasons why the green economy represents a massive value-creation opportunity is long and well
Furthermore, as the cost of climate inaction becomes increasingly evident amid frequent natural disasters, customers are likely to penalize companies that are not leading—and reward those that do.
But how companies can seize the opportunity to build valuable new green businesses is far from straightforward. Over the last couple of years, as climate commitments have been translated into action, CEOs have witnessed firsthand the complexity of this global green transformation. Whether determining how to adjust to a shifting regulatory landscape, ensuring the company has the right skills and expertise, or surmounting financing hurdles, companies that want to seize the green growth opportunity are confronting a range of challenges that threaten to constrain their progress.
The good news: if assessed clearly, addressed directly, and managed well, these challenges can give way to competitive advantage. We have identified five actions that can enable companies to navigate the complexities of the green economy while simultaneously accelerating their climate efforts.
The right mix of actions required will depend, of course, on the specific green venture being targeted. But CEOs that make the right combination of these moves—and who communicate their plans clearly—can set their company up for success and bring even the most skeptical shareholders along on the green-growth journey.
A Roadmap for Success
To successfully build a new green business, CEOs can take five key actions. The strategies of forward-looking companies around the world highlight the impact of such an approach.
Identify the right business model. There are a wide range of approaches that can position a company for success. For some, the appropriate first step may be to adopt or invest in a promising new green technology; for others, the time may be ripe to take bolder steps, such as launching or acquiring a new business or creating a green tech incubator.
The challenge for many companies is understanding which business model is appropriate for the particular opportunity at hand. The correct answer will depend on a number of factors, including the target customer base, the offering’s value proposition, and the potential to scale.
Finance innovatively. Green projects can require substantial upfront investment and may come with higher risk than traditional company initiatives. Fortunately, there are financing approaches that can overcome those hurdles and allow companies to access competitive financing for new green businesses. For example, companies can tap into new sources of capital, including government and catalytic funding. In addition, offtake agreements—under which customers commit to buying a product before production begins—can facilitate project financing.
Many of the new green business opportunities today are in B2B markets. For those ventures, signing even one or two anchor customers via offtake agreements can reduce the risk of the project significantly and clear the way for financing.
Leverage core capabilities to build new ones. It is true that the transition to more sustainable operations and the development of green businesses often requires new skills and expertise. But it is also true that most companies have existing assets—including robust R&D engines, intellectual property, brand equity, and industry-specific relationships and insight, to name just a few—that provide a strong foundation for the new requisite capabilities.
As a result, companies can strengthen their core business while building share in new, related segments—increasing the likelihood that the new business is earnings accretive in the near term.
Build strategic partnerships. Some decarbonization efforts require the transformation of an entire value chain—and therefore come with significant risk for companies acting on their own. Companies can collaborate with other private-sector players, governments, and NGOs to drive the necessary system-wide change, including by closing capability gaps, pooling offtake agreements, and reshaping supply chains.
Capitalize on the evolving regulatory landscape. The last few years have seen the passage and implementation of significant new policies aimed at accelerating the energy transition and decarbonization more broadly, including in Europe and the US. China, meanwhile, has adopted an ambitious green industrial policy, while other economies in APAC, such as Japan, Korea, and India, are building their own support packages for various clean technologies.
The regulatory framework will continue to evolve in the years ahead. Consequently, companies will need to develop discrete strategies for different markets and adapt those strategies as policies shift. Companies that understand the current regulatory environment and are able to anticipate future shifts can reduce risks and capitalize on new opportunities.
The green economy is one of the most significant business opportunities of our time. In the next few years, there will be hundreds of new unicorns in this space—some originating inside established corporations and others emerging as new ventures. History tells us that this disruption, like others before it, will also displace some currently robust incumbents and spark the rise of new market leaders.
To seize this opportunity, companies must design and execute a clear plan for building a new green business—one that reflects the many complexities at play. Those that do will build support for their strategy and secure market leadership, competitive advantage, and long-term resilience.
The authors thank Katelyn McEvoy and Sarah Lichtblau for their support in the development of this publication.
Authors
Hubertus Meinecke
Hamid Maher
Managing Director & Senior Partner; Head of BCG Casablanca office; Head of BCG Tech Hub in Africa
Casablanca
Harnish Jani
Managing Director & Partner
Austin
Siddharth Jain
Managing Director & Partner
New Delhi
Lesego Letlape
Project Leader
Dubai