While many organisations are investing heavily in net zero initiatives, the investment case is not well-understood and insufficient capital flows are slowing down the scale and speed of transition, according to the Business breakthrough barometer.
“We need a fundamental rewiring of the financial markets to tilt their capital allocation and valuation incentives toward the scaling of net-zero solutions.
Growing business investment
Almost three-quarters (74 per cent) of executives said they had increased investment in net zero initiatives over the past three years – with a third saying they had committed more than half of their capital expenditure to it, the report said.
Most (91 per cent) respondents said they viewed carbon transition as an opportunity. But the lack of a strong investment case and slow infrastructure scale-up were major challenges, the report said.
Executives expressed “frustration that market structures are not effectively rewarding investments in low-carbon technologies slowing the pace and scale of the transition,” according to the research. In addition, half said their plans had been impacted by inflation in plant costs, rising renewable energy prices and uncertain revenue models. Lagging regulation also dragged on progress.
“Businesses identify the need for long-term sector-specific industrial policies with a focus on simplified permitting, mandated demand, revenue guarantees for early-stage technologies, direct government intervention to build-out infrastructure and continued innovation funding,” the report said.
Battery demand and production
The business case for electric vehicle batteries (EV) offers a case study of the complexity of net zero transition. While there is a global oversupply of EV batteries driven by Chinese production, trade tariffs in Europe and the US could impact both the price and uptake of electric vehicles, the report said.
While European businesses attempt to scale up to meet local demand, achieving economies of scale of production and high-quality products is a major challenge – with over 10 per cent of European capacity delayed because of quality issues.
Even though there are political concerns over China’s dominance in this industry, the impact of such high production could fuel growth. “The reality of the [battery] oversupply from China, but also the pricing, could very well be a benefit in terms of providing access to entire countries and societies that cannot afford it otherwise,” said a policy leader from an emerging economy in the report.
