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the green factory

Industrial companies have an enormous carbon footprint. Their production and logistics operations account for more than half of all global carbon dioxide equivalent (CO₂e) emissions from fuel combustion. Considering current trends, emissions from production and logistics would need to decrease by approximately 45% by 2030 to be on a path to meet the Paris Agreement’s 1.5°C target for limiting the global temperature increase. As longstanding environmental concerns intensify, industrial companies are feeling increasing economic pressure to tackle the problem.

Recognizing the need for action, leading companies are implementing initiatives to decarbonize their operations. Moreover, some companies have gone further and started to require their business partners in the supply chain to demonstrate a commitment to decarbonization as well. The result is a convergence of environmental and eco­nomic imperatives that all industrial companies must be prepared to address. The solution is a concept that we call “the green factory of the future,” in which the integrated application of decarbonization measures reduces net emissions to zero.

To better understand the opportunities and challenges that decarbonization presents, a BCG study examined expectations for and adoption of decarbonization measures in industrial operations. The study focused on the results of a global survey of nearly 1,200 operations executives from numerous producing industries. (See “About the Study.”) This survey was conducted before the COVID-19 pandemic spread globally. However, although the pan­demic has altered some short-term priorities, the climate challenge and the urgency to respond to it remain unchanged. In the middle term, the actions described in this report will continue to be relevant and may even have gained significance. Indeed, as companies revamp their strategies to win the post-pandemic future, they have a unique opportunity to focus on climate action.

The study found that industrial companies want to reduce their carbon footprint, with more than three-quarters of them viewing decarbonization as a high priority. So far, how­ever, most companies have struggled to achieve their goals. Only 13% of survey respondents say that their company has fully implemented decarbonization measures in their production and logistics. The biggest obstacle to more aggressive action seems to be concern that the initiatives will raise conversion costs.

We believe that industrial companies should not regard environmental sustainability as a threat to economic sustain­ability. Indeed, as pressure intensifies to pursue decarbonization throughout the industrial supply chain, environmental and economic sustainability will become increasingly difficult to separate. Although the challenges are significant, the results of our study show that companies can implement win-win actions that benefit the environment and create financial value. The keys to success are to identify the most effective decarbonization measures and to evaluate the economic impact of adopting these measures in a way that considers factors beyond conversion costs—such as getting ahead of regulations, attracting investors, and winning new customers. By using a rigorous evaluation process, a company can ensure that environmental and economic sustainability go hand in hand in the green factory of the future.

WHY SUSTAINABILITY MATTERS IN OPERATIONS

Our study focused on environmental sustainability in industrial operations, comprising production and logistics. We gave special emphasis to greenhouse gas (GHG) emissions, which are predominantly CO₂ but also include such gases as methane and nitrous oxide. (See “The Basics of Sustainability in Operations.”)

As noted earlier, industrial operations are responsible for a significant share of global GHG emissions.