Businesses sound the alarm: Market barriers prevent critical net zero investments

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Government action is vital to unlock private sector investment at scale, say business leaders in global Business Breakthrough Barometer

• 91% of business leaders surveyed view the transition to net zero as an investment opportunity.
• Only 1% believe that the transition to net zero is on track in the 11 sectors assessed responsible for 70% of global emissions.
• Two-thirds of businesses identify the lack of a strong investment case and slow scale-up of infrastructure as the most urgent barriers to accelerate the transition.
• Business leaders emphasise that without long-term, investment-positive policies, the next wave of large-scale investments are at risk.
• Long-term industrial policies including streamlined permitting, mandated demand, direct investment in infrastructure, and stronger international coordination are needed to scale private sector investments.
• Nine out of ten businesses are prepared to invest more if governments implement policies to address sector barriers.

Geneva, Switzerland – 31 October 2024 Business leaders have warned that without bold government policy, the next wave of large-scale investments in the net zero transition are at risk. An overwhelming 91% of executives see the transition as an investment opportunity, based on responses from 250 executives of leading businesses worldwide, with a combined market capitalisation of more than $2 trillion. However, only 1% of businesses believe the transition is on track.

The warning comes in a new report launched today by the World Business Council for Sustainable Development (WBCSD) in partnership with Bain & Company, the Breakthrough Agenda and the Marrakech Partnership. The report emphasises that achieving plans to halve emissions by 2030 and meet the 1.5°C climate target hinges on private sector investment.

The report shows that businesses have been investing substantially in the net zero transition. Three-quarters (74%) of businesses surveyed have increased their investments in the net zero transition over the past three years, motivated by growing commercial opportunities in their industry, with one in three (35%) committing more than half of their capital investment.

However, two thirds (66%) of business leaders identify the lack of a strong investment case and slow scale-up of infrastructure as the most urgent barriers to accelerate large-scale investment. Businesses cite that macroeconomic challenges are delaying project development, with 50% inflation in plant capital expenditure costs and rising renewable energy prices, slow permitting processes, uncertain revenue models, limited low-carbon fuel supply, long grid interconnection queues and slow roll-out of charging networks; all putting the next set of investments needed to achieve net zero goals at risk.

Nine in ten (90%) of those surveyed say they would invest more if governments implemented policies to address sector-specific barriers.

Peter Bakker, President and CEO of WBCSD shared “This report is the first pulse-check on the net zero transition from a business perspective, offering a clear snapshot of where we stand and where we’re falling short. More importantly, it shows the critical gaps we need to close to make the net zero transition possible. Businesses are stepping up, but without decisive government action, we risk missing out on the unprecedented investment opportunities ahead.

According to the report, businesses are frustrated that current policy and market structures fail to reward low-carbon investments, and in difficult to decarbonise sectors highlight the need to move beyond a reliance on voluntary demand which is not increasing at the pace needed for sectors such as steel, cement, aviation, shipping and chemicals.

The report highlights how governments can unlock substantial private-sector investment by tackling market barriers to deploying low-carbon technology. Businesses identify the need for sector-specific industrial policies with a focus on streamlined permitting, mandated demand, revenue guarantees for early-stage technologies, government investment in infrastructure and innovation support.

Business leaders also overwhelmingly (85%) say greater international coordination is highly important for the net zero transition, but only a quarter (25%) say it is currently effective.

They point to the need for deeper and more effective coordination among major economies particularly on harmonized definitions and standards, demand mandates, fit-for-purpose international trade rules and cross-border infrastructure.

Cate Hight, Partner at Bain and Company said, “Businesses and governments are certainly making progress. The technologies are available, and we see strong policy, including standards, subsidies and direct investment, in place in some geographies; these are putting wind in the sails of the investment case for energy transition. However, we’re not moving quickly enough. This year’s barometer is a clear message from business that additional policy support is crucial to set the market conditions necessary to enable a clear business case for adoption of lower carbon technologies, at scale, in this crucial decade.

The report looks at five key barriers – investment case, infrastructure, technology, supply constraints, and customer behaviour—and assesses businesses’ perspectives on whether the conditions are right for the pace and scale of investments required. In 11 key sectors, that account for over 70% of global emissions, including power, cement and concrete, steel, and shipping, only the battery industry has the necessary conditions to attract sufficient investments to stay on track for net-zero targets.

Despite significant barriers, the report cites a number of positive examples of business investment over the past year including:

• Steel companies committing billions to build hydrogen-fuelled plants to produce low-carbon steel. Planned capacity rose 150% in the last year, although this is still not sufficient to be on track to align with 1.5°C.
• Orders for methanol-fuelled ships grew by 80% from 2023 to 2024 as shipping companies future-proof their fleets; however, the supply of green fuels is not scaling rapidly enough.
• Airlines’ use of Sustainable Aviation Fuel is expected to grow 165% from 2023 to 2024, although costs are two to three times higher than conventional fuel, and businesses are concerned about limited feedstocks.

Where governments are implementing more ambitious policy measures, there are clear signs that this is accelerating corporate action, with a number of countries highlighted by businesses as creating the conditions for investment and market opportunity.

• Business has doubled global green hydrogen capacity since 2023 in response to government auctions.
• Forthcoming EU mandates requiring the use of Sustainable Aviation Fuel and an uptick in clean fuels policies in other markets have increased energy providers’ focus on production.
• “EV swing states” like Vietnam, Malaysia and Indonesia are doubling or even quintupling year-on-year electric vehicle sales due to strong local policies coupled with access to finance.
• Tax incentives through the Inflation Reduction Act have made the US an attractive investment location for multiple sectors including hydrogen, batteries and chemicals.
• Businesses view city-level regulation, such as in Paris, New York and Singapore, as the primary drivers for lower carbon investments in buildings due to their faster decision-making ability, integrated urban planning and public-private partnerships.

Gonzalo Muñoz, COP25 High Level Champion shared,“The Barometer highlights immense business opportunities in the net zero transition. We urge policymakers to act boldly and unlock the full potential of corporate investment at COP29.

Christiana Figueres, Former Executive Secretary of the UNFCCC, added “The Business Breakthrough Barometer highlights enormous appetite from businesses to invest in the net zero transition alongside frustration that market structures are not yet effectively rewarding these investments. As governments approach the deadline to submit enhanced national climate plans to the UN, this is a wake up call for them to include the ambitious mandates that will help companies go faster.

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