FiveLessonsfromBuildingGreenBusinesses

NOVEMBER11,2024

By

HubertusMeinecke

,

HamidMaher

,

MadsPeterLanghorn

,

Anand

Veeraraghavan

,

VukTriovic

,HarnishJani,SiddharthJain,SarahLichtblau,andLesegoLetlape

READINGTIME:12MIN

Whenitcomestoinvestinginnewgreenbusinesses,CEOstendtohaveclarityonthe“why”Lessunderstood,though,isthe“how”

Thelistofreasonswhythegreeneconomyrepresentsamassivevalue-creationopportunityislong

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andwellunderstood.Anestimated$3trillionto$5trillioninannualcapexinvestment—anamount

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roughlyequivalenttotheGDPoftheUK—isneededbetweennowand2050toachievenetzero.

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Technologyisadvancingrapidly:

renewableenergy

costshavedeclinedprecipitously(90%to70%forwindandsolarpoweroverthelastdecade)and

AI

nowgivescompaniesacriticaltoolforguiding

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mitigationandadaptationandresiliencestrategies.

Furthermore,asthe

costofclimateinaction

becomesincreasinglyevidentamidfrequentnaturaldisasters,customersarelikelytopenalizecompaniesthatarenotleading—andrewardthosethatdo.

Asthecostofclimateactionbecomesincreasinglyevident,customersare

likelytopenalizecompaniesthatarenotleading—andrewardthosethatdo.

“

Buthowcompaniescanseizetheopportunitytobuildvaluablenewgreenbusinessesisfarfrom

straightforward.Overthelastcoupleofyears,asclimatecommitmentshavebeentranslatedintoaction,CEOshavewitnessed?rsthandthecomplexityofthisglobalgreentransformation.Whetherdetermininghowtoadjusttoashi代ingregulatorylandscape,ensuringthecompanyhastherightskillsandexpertise,orsurmounting?nancinghurdles,companiesthatwanttoseizethegreen

growthopportunityareconfrontingarangeofchallengesthatthreatentoconstraintheirprogress.

Thegoodnews:ifassessedclearly,addresseddirectly,andmanagedwell,thesechallengescangivewaytocompetitiveadvantage.Wehaveidenti?ed?veactionsthatcanenablecompaniestonavigatethecomplexitiesofthegreeneconomywhilesimultaneouslyacceleratingtheirclimatee?orts.

Therightmixofactionsrequiredwilldepend,ofcourse,onthespeci?cgreenventurebeingtargeted.ButCEOsthatmaketherightcombinationofthesemoves—andwhocommunicatetheirplans

clearly—cansettheircompanyupforsuccessandbringeventhemostskepticalshareholdersalongonthegreen-growthjourney.

IdentifytheRightBusinessModel

Thereareawiderangeofapproachesthatcanpositionacompanyforsuccess.Forsome,the

appropriate?rststepmaybetoadoptorinvestinapromisingnewgreentechnology;forothers,thetimemayberipetotakeboldersteps,suchaslaunchingoracquiringanewbusinessorcreatinga

greentechincubator.

Thechallengeformanycompaniesisunderstandingwhichbusinessmodelisappropriateforthe

particularopportunityathand.Thecorrectanswerwilldependonanumberoffactors,includingthe

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targetcustomerbase,theo?ering’svalueproposition,andthepotentialtoscale.

Sanko:CapitalizingonaNewGreenTechnology

Sanko,aprominentindustrialconglomerateinTurkey,developedaproprietaryrecyclingtechnologythathaspowerfuladvantages.First,itcanrecycleblended-materialtextiles,especiallypolycotton,forwhichthetechnologyisabletopreservethequalityandnatureofthecotton.

Second,Sanko’stechnologyeliminatesthesortingstep,makingitcapableofhandlingbothexcessmaterialfromtextilemanufacturingandusedclothingfromconsumers(thelargestsourceoftextile

wasteandmaterial,whichiso代enchallengingtorecycle)inacost-e?ectivemanner.Finally,thecompany’stechnologyemergedattherighttime,withthefashionindustrypushingtomeet

ambitiouscircularitytargetsandcomplywithupcomingenvironmentalregulationsinEUandtheUS.

AkeyquestionfacingSanko:Whatbusinessmodelwouldallowthecompanytomaximizethevalueofthisinnovativeasset?

Theanswerwoulddependinpartonwhichsegmentofthemarketwasbestsuitedtothetechnology.Oneattractiveoptionwastoproduce“next-gen”?ber(recycled,high-performance,textile-grade

?berswithenhancedtraceabilityandversatility).Sankoassessedthedemandandpro?tabilityforsuchaproduct,especiallynext-gencotton,acrossallmarketsanddevelopedastrategytocapturetheopportunity.

Giventhatthecompany’sexistingbusinessfocusedonyarns,?laments,andfabric(not?ber)anditsambitionstothebuildthelargesttextile-to-textilerecyclingbusinessintheworld,Sankodecidedto

establishanewseparateentitytocommercializethetechnology.Thisnewcompany,RE&UP,hasachievedstrongearlyresults,producingrecycledcotton?berwhichgenerates70%fewerCO2

emissionsandrequires90%lesswatercomparedtoproductionofconventionalcotton.

Thecompanyaimstorecycleover1millionmetrictonsoftextilewasteby2030—equivalenttomorethan2.5billiongarments.Thatwouldslashwaterusageby2.3billioncubicmeters,equivalenttothetotalannualwateruseintheUK.

FinanceInnovatively

Greenprojectscanrequiresubstantialupfrontinvestmentandmaycomewithhigherriskthan

traditionalcompanyinitiatives.Fortunately,thereare?nancingapproachesthatcanovercomethosehurdlesandallowcompaniestoaccesscompetitive?nancingfornewgreenbusinesses.Forexample,

companiescantapintonewsourcesofcapital,includinggovernmentandcatalyticfunding.Inaddition,o卅akeagreements—underwhichcustomerscommittobuyingaproductbefore

productionbegins—canfacilitateproject?nancing.

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ManyofthenewgreenbusinessopportunitiestodayareinB2Bmarkets.Forthoseventures,signing

evenoneortwoanchorcustomersviao卅akeagreementscanreducetheriskoftheprojectsigni?cantlyandclearthewayfor?nancing.

IREDA:InnovationinGreenFinancing

TheIndianRenewableEnergyDevelopmentAgency(IREDA)wasestablishedbythegovernmentofIndiaasanon-banking?nancialinstitutiontoacceleratethebuildoutofgreenenergy.

IREDAgarnerstwokeybene?tsfromitssolefocusongreen?nance.First,theagencyhaseasier

accesstoglobalgreenfundscomparedtoinstitutionsthatfundabroadrangeofsectors.Second,

givenIREDA’sdeepknowledgeofthegreenenergymarket,ithasdevelopedtailored?nancing

productsthatbetterre?ecttheriskassociatedwithspeci?cprojects.Asaresult,theagencycanfundprojectsathigherdebt-to-equityratiosthanstandardlendersthattakeamoreuniformapproach,

makingtheagencyanattractivepartnertopotentialcustomers.

Leveragingthoseadvantages,IREDAhasadoptedinnovativeapproachestolowerthecostoffundsforitscustomers.Forexample,theyhaveestablishedadedicatedunitfocusedonidentifying

internationalconcessionalandblended-?nancesourcesofcapitalthataretargetedtospeci?cenduses.Theagencythenmatchesthosefunds—forexample,concessionalfundinglinesavailable

speci?callyfordevelopmentofsolarparks—withcustomersthatareworkingonsuchprojects.

IREDAhasalsoincorporatedasubsidiaryinGIFTInternationalFinancialServicesCentre,aspecialeconomiczoneinIndia.Thesubsidiarywillfocusexclusivelyondollar-denominateddebt?nancingforexport-orientedgreenindustries(suchasgreenhydrogenorsolarmodulemanufacturing)ando?shoregreenenergyprojectsledbyIndiandevelopers.

GiventhatboththefundsIREDAraisesforthesubsidiaryandtheloansitmakeswillbeindollars,

theagencywillnotneedtohedgeforcurrencyrisk.Thatwillresultinaninterestratereductionof300

to350basispointsfortheendcustomer.Inaddition,withbothitsrevenuestreamanditsdebtdenominatedindollars,thecustomer’sforeignexchangeriskisloweredaswell.

SuchinnovationhasallowedIREDAtoexpandaccesstorelativelylow-cost?nancingforcompaniesinemerginggreensectors,enhancingtheviabilityofmanylow-carbonenergyprojects.

LeverageCoreCapabilitiestoBuildNewOnes

Itistruethatthetransitiontomore

sustainableoperations

andthedevelopmentofgreenbusinesseso代enrequiresnewskillsandexpertise.Butitisalsotruethatmostcompanieshaveexistingassets

—includingrobustR&Dengines,intellectualproperty,brandequity,andindustry-speci?c

relationshipsandinsight,tonamejustafew—thatprovideastrongfoundationforthenewrequisitecapabilities.

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Asaresult,companiescanstrengthentheircorebusinesswhilebuildingshareinnew,related

segments—increasingthelikelihoodthatthenewbusinessisearningsaccretiveinthenearterm.

OCP:ASustainabilityTransformationThatSparksNewVentures

OCP,aleadingglobalfertilizerproducerbasedinMorocco,isdrivingabroadsustainability

transformationwiththegoalofachievingnetzeroby2040.Aspartofthise?ort,thecompanyisbuildingaportfolioofnewgreenbusinessesthatarefocusedoutsideOCP’scorebusinessbutleveragethecompany’sexistingassetsanddeepexpertiseinsectorssuchaswater,energy,

chemicals,andagriculture.

ThesenewventureshavebeendevelopedbyInnovx,adedicatedinnovationincubator.Sincebeingestablishedin2022,Innovxhasprovidedcriticalcapabilities,resources,andframeworkstosupportmorethan20newventures.Thegoal:tode-riskOCP’sinnovationjourney,meetthecompany’s

decarbonizationobjectives,andadvanceproductcircularity.

ThenewbusinessesincludeHydrojeel,whichaimstoproduce3milliontonsofgreenammonia,

materialthatcanbeusedtosigni?cantlyreduceOCP’scarbonfootprint.Anotherventure,Tourba,

hopestosupportthetransitionof6millionhectaresoffarmlandtosustainableagriculturalpracticesby2027,helpingtosequestercarbonandreinforcefarmers’resiliencetoclimatechange.

Meanwhile,aspartofitscircularityobjective,OCPlaunchedFluoralphaandUranexttoextract?uorineanduranium,respectively,fromphosphate-rockprocessing—materialsthatwouldhaveotherwisebeentreatedaswaste.Theambitionistobuildthesetwoventuresintolargeglobal

?uorineanduraniumproducersby2040.

BuildStrategicPartnerships

Some

decarbonization

e?ortsrequirethetransformationofanentirevaluechain—andtherefore

comewithsigni?cantriskforcompaniesactingontheirown.Companiescancollaboratewithotherprivate-sectorplayers,governments,andNGOstodrivethenecessarysystem-widechange,includingbyclosingcapabilitygaps,poolingo卅akeagreements,andreshapingsupplychains.

BioCirc:LeveragingthePowerofEcosystems

Tacklingagriculturerelatedemissions—amajorpriorityinDenmark—requiresactionacrosstheecosystem.Copenhagen-basedBioCirc,foundedjustthreeyearsago,hasbuiltabusinessthat

advancesagriculturaldecarbonizationbybringingsectoralplayerstogether.

Thecompanyproducesgreenenergybyconvertingbiologicalmaterial—foodoranimalwaste—intobiomethane.Akeyelementofthecompany’ssuccesshasbeenitspartnershipwithfarmers,most

notablythroughalinkupwithDLG,amajoragriculturalcooperative.Theagriculturalsector,

includingfarmersthatarepartofDLG,supplybiomasstothecompany,enablingittoreduceor

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avoidcarbonemissionsfromon-farmwaste.DLGtookastakeinBioCirc,providingfarmerswithinthecooptheopportunitytoshareinthevaluecreatedthroughthedecarbonizationoftheir

operations.AndBioCirchasalsogivenindividualfarmerstheoptiontoinvestdirectlyintheventure.

Thecompanynowhaseightoperatingbiomethanefacilitieswhichproducegreengastoheatbuildings,driveindustrialprocesses,andfuelthetransportsector.SinceBioCirc’splantsbegan

operating,theproductionhasabatednearly2millionmetrictonsofCO2onanetbasis,equivalenttoremovingmorethan400,000carsfromtheroad.AddingtotheongoingCO2abatement,BioCircis

settocaptureandpermanentlystoreroughly1milliontonsofbiogenicCO2fromtheirbiogas

productionby2036,makingitthelargestcarboncaptureandstorageprojectinbiogasgloballytodate.

BioCircexpectstoexpanditsnetworkofpartnersintheyearsahead,includingthroughthe

developmentofwhatitcalls“circularenergyclusters”thatproviderenewableenergy(includingwindandsolarpowerandrenewablefuels)inlocalmunicipalities.

CapitalizeontheEvolvingRegulatoryLandscape

Thelastfewyearshaveseenthepassageandimplementationofsigni?cantnewpoliciesaimedatacceleratingthe

energytransition

anddecarbonizationmorebroadly,includinginEuropeandtheUS.China,meanwhile,hasadoptedanambitiousgreenindustrialpolicy,whileothereconomiesinAPAC,suchasJapan,Korea,andIndia,arebuildingtheirownsupportpackagesforvariouscleantechnologies.

Theregulatoryframeworkwillcontinuetoevolveintheyearsahead.Consequently,companieswillneedtodevelopdiscretestrategiesfordi?erentmarketsandadaptthosestrategiesaspoliciesshi代.Companiesthatunderstandthecurrentregulatoryenvironmentandareabletoanticipatefuture

shi代scanreducerisksandcapitalizeonnewopportunities.

BKV:TheBusinessCaseforCarbonCapture

BKV,anindependentUS-basedenergycompany,setanaudaciousambitiontoachievenetzero

Scope1andScope2emissionsfromitsownedandoperatednaturalgasproductionandmidstreambusinessesbytheearly2030s.

Tomakethatcommitmentareality,thecompanyconductedacomprehensiveevaluationof

decarbonizationoptionsin2021,includingassessmentsofrenewablesandhydrogen.Thecompanyhonedinonthepotentialofcarboncapture,utilization,andstorage(CCUS),thanksinparttothe

Section45QtaxcreditsassociatedwithCCUSprojects—federalincentivesexpandedthroughlegislationin2022.

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BKVformalizedarobustbusinesscasetolaunchitsCCUSventure.Thegoalwastonotonlyusethetechnologytocaptureemissionsgeneratedfromtheirownoperationsbuttoalsocaptureemissionsfromcustomersinotherhard-to-abatesectors.BKVmovedquickly,maximizing?nancialincentivesforCCUSandnavigatingacomplexpermittinglandscape.InNovemberof2023—justtwoyears

a代ertheybeganexploringtheopportunity—BKVbroughttheBarnettZeroprojectonline,makingitoneofthe?rstcommerciallyviableCCUSprojectsinNorthAmerica.

Thislandmarkprojectisexpectedtopermanentlysequesterapproximately183,000metrictonsofCO2equivalentannually.BKVispursuingsixteenadditionalpotentialCCUSprojectsthatcould

ultimatelycaptureover16millionmetrictonsofCO2equivalentperyear.

Thegreeneconomyisoneofthemostsigni?cantbusinessopportunitiesofourtime.Inthenextfewyears,therewillbehundredsofnewunicornsinthisspace—someoriginatinginsideestablished

corporationsandothersemergingasnewventures.Historytellsusthatthisdisruption,likeothersbeforeit,willalsodisplacesomecurrentlyrobustincumbentsandsparktheriseofnewmarket

leaders.

Toseizethisopportunity,companiesmustdesignandexecuteaclearplanforbuildinganewgreenbusiness—onethatre?ectsthemanycomplexitiesatplay.Thosethatdowillbuildsupportfortheirstrategyandsecuremarketleadership,competitiveadvantage,andlong-termresilience.

TheauthorsthankKatelynMcEvoyforhersupportinthedevelopmentofthispublication.

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Authors

HubertusMeinecke

MANAGINGDIRECTOR&SENIORPARTNER;GLOBALLEADER,CLIMATE&SUSTAINABILITYPRACTICE

Hamburg

HamidMaher

MANAGINGDIRECTOR&SENIORPARTNER;HEADOFBCGCASABLANCAOFFICE;HEADOFBCGTECHHUBINAFRICA

Casablanca

MadsPeterLanghorn

MANAGINGDIRECTOR&PARTNER

Copenhagen

AnandVeeraraghavan

MANAGINGDIRECTOR&SENIORPARTNER

Singapore

VukTri仇ovic

MANAGINGDIRECTOR&PARTNER,BCGX

Berlin

HarnishJani

MANAGINGDIRECTOR&PARTNER

Austin

SiddharthJain

MANAGINGDIRECTOR&PARTNER

NewDelhi

?2024BostonConsultingGroup8

SarahLichtblau

PARTNER

SanFrancisco-BayArea

LesegoLetlape

PROJECTLEADER

Dubai

1“Green”referstosustainablepracticesaimedatreducing

environmentalimpactandpromotingtheresponsibleuseofnaturalresources,perthegeneralprinciplesoutlinedbytheUnitedNationsEnvironmentProgramme.

2EnergyTransitionsCommission,FinancingtheTransition:HowtoMaketheMoneyFlowforaNet-ZeroEconomy,March2023;International

EnergyAgency,NetZeroby2050,May2021.Somehigherprojections

exist,e.g.,ClimatePolicyInitiative,GlobalLandscapeofClimate

Finance2023,November2023,whichestimatesthatclimate?nancewillneedto