Climate change is a big problem. It will require ingenuity and large allocations of capital to address. That means the climate transition also poses significant risk. Incumbent firms are torn between two options. On the one hand, they can make early investments in technologies and products that will point the way forward in decarbonizing their sector. This puts them out front, where both risks and rewards associated with new products and markets may be high. On the other hand, firms may wait for competitors in their sector to test the decarbonization waters. But this path creates risks as well, as competitors build a lead in technologies that may fundamentally transform sectoral competition. A strategy of climate catch-up poses its own challenges, and firms that delay risk losing their competitive edge.
Navigating the green transition will require that we shepherd scarce resources. Regions with the most abundant renewable sources will become targets for new investments. Manufacturers are already flocking to secure power purchase agreements from low-carbon hydro sources in northern Scandinavia and northeast Brazil. Where solar and wind are especially strong and reliable—West Texas, Morocco, Chile, the Gobi Desert—new green industrial hubs are quickly emerging. Batteries to power new electric vehicle fleets will put strains on natural resources but also create enormous opportunities for minerals mining and processing. Similarly, clean energy companies are scouring the world for workers who have the skills they will require to support the transition, creating opportunities for those with relevant skills.
Yet the most valuable and potentially scarcest resource through this transition is likely to be effective and thoughtful leadership. Sector by sector, we face the kind of transformation that will challenge the mettle and vision of our global managerial class.
Given the broad-based nature of the transition we are facing, the range of roles in which these leaders operate is unusually broad. Within firms, climate leadership is no longer solely the responsibility of sustainability officers. Functional areas ranging from finance, accounting, and marketing to product development are all now on the front line of corporate decarbonization efforts. In many cases, corporate boards of directors are making critical decisions around decarbonization that may be far from their traditional areas of competency.
