No silver bullet - We need to rethink green solutions in heavy industry

Article written by Esben Hegnsholt , Managing Director & Partner at BCG in Denmark

"Our global society and economy is reliant on shipping, logistics, and the built environment. At the same time, these sectors are fragmented, regionalized, making them hard-to-abate. There is no silver bullet when it comes to decarbonizing these industries."

That's Peter Jonathan Jameson ’s assessment, Managing Partner and Director at BCG, leading our Climate & Sustainability practice in the Nordics.

Nevertheless, because these industries have a large contribution to global greenhouse gas emissions, we need to act now, says Peter Jameson.

Peter operates across various sectors, focusing on climate and sustainability strategies and transformations. He understands that the industries' efforts to reduce carbon emissions are, as he says, 'not just about saving the world.': "It's also about finding economic solutions because sustainability is not just about the environment; it’s also about economic sustainability,” he says.

Strategies for a sustainable transition

The green transition in transportation, logistics, and built environment falls into three main categories.

"At the operational level, it’s about using less. Like combining different companies' distribution networks to reduce the number of trucks on the road. It is almost a no-brainer to squeeze the lemon here.

At the technological level, it is about being smarter about what we use. For example, there are big developments in Digital solutions that help companies optimize their activities. The third category is about looking for alternatives, like alternative and greener fuels.

These three approaches need to be tackled together. For example, if we are going to use more expensive greener fuels, we need to make sure that the engines that use them are as efficient as possible," says Peter Jameson.

However, there is a fair amount of uncertainty about the pace at which progress can be made. While many companies are making bold leadership choices, many are just standing on the sidelines looking in. One mechanism to accelerate the transition could be the addition of legislation that promotes a swift transition. This could either take the form of incentives or penalties. Creating an economic level playing field for those who act is essential to accelerate the transition.

Rethinking urban transport and construction

"Our current methods of getting products in and out of big cities are ineffective. Commercial transportation struggles in densely populated areas, particularly as the '5-minute city' concept—where everything is within close reach—gains popularity".

On top of that, people need to change their habits, like being more willing to hop on a bus or metro, for example.

This, in turn, requires metros and buses to meet behavioral needs by being more punctual and reliable. All of this will need to be backed by regulations, such as introducing more low-emission zones," says Peter Jameson.

As we look for better ways of transporting goods, we must also rethink how we construct the cities to which we transport them. Significant work is needed within the building and construction industry, a major contributor to global greenhouse gas emissions.

“The key is to use less building material, find lower-emitting alternatives, and ensure better reuse of scrap and waste material. Many of the solutions are already out there and new design thinking is ready to deploy. We just need to find a way to incentivize its use”. emphasizes Peter.

The road to decarbonizing supply chains

The big challenge for many transport, logistics, and building and construction companies is how they can work with their supply chain partners.

"It's fair to say that within these sectors, it's not exactly the norm to adopt Science-Based Targets in company policies. While there is work being done within Scope 1 and Scope 2, these companies are rarely asked about their Scope 3 reductions.

In hard-to-abate sectors like these, the key is to foster a willingness to pay for sustainability and to figure out how to share the risk and cost across the value chain.

"It is not easy, especially because of the fragmentation of the sectors. Nobody can do it on their own, and that's the key challenge." says Peter Jameson.

Therefore, there is a need to strengthen the existing collaboration forums and establish new ones to release the potential.

“When making plans and taking action, it's crucial not to let perfection go before progress, which again requires bold leadership," says Peter Jameson.

In order to achieve a rapid transition to a greener economy, substantial investment is required across all industries. Regarding the possibilities of attracting investments, Jameson underlines the necessity of transparency regarding risks.

"There must be a thorough risk analysis. Otherwise, investors will hesitate. They will simply calculate 'the cost of the decision' versus 'the willingness to pay.' At the moment, there will be a financial gap. That gap needs bridging," he says.

A precondition is the creation of a level playing field when it comes to decarbonization demands as well as the rules on how companies should report about it. This will be the case within the EU because of new regulation at a union level.

However, because shipping and construction are worldwide industries, initiatives in Europe, including the Nordics, will not be sufficient in the big picture. "Asia and the USA differ vastly from Europe and won't necessarily adopt similar practices,” says Peter Jameson.

European business leaders, not the least from the Nordic countries, can do their part by getting up on the world stage, showing how it is possible to introduce 'green' as a new product in transportation, logistics, and construction. Hopefully that can be of inspiration in other parts of the world, because surely European action alone is not enough:

“We need global leaders and regional leaders around the world to pave the way for the rest.