Leaders of transportation and logistics (T&L) companies need to transition from defense to offense in their approach to climate action. Typically, T&L executives have viewed sustainability efforts as a compliance burden or a potential source of cost savings. In addition to considering these issues, they need to recognize that climate action offers them a broader opportunity to create tangible value by tapping into new markets and meeting new types of demand for low-carbon services. By taking the right approach, companies can increase their resilience to a known and imminent threat.
The imperative for T&L companies to embrace environmental sustainability is clear. Transportation activities (aviation, rail, shipping, heavy and light trucking) are responsible for approximately 17% of global greenhouse gas (GHG) emissions. Without the industry’s participation, countries will not be able to meet their goals for limiting the global temperature increase over the remainder of this century. (See «The Case for Climate Action.») Rather than distracting from this effort, the COVID-19 crisis should be seen as creating an opportunity and obligation to accelerate action. Indeed, climate change exploits many of the same vulnerabilities exposed by the pandemic—but even more severely and over a longer time frame.
Transitioning to playing offense in sustainability will not be easy for T&L companies. Fortunately, they can draw on best practices developed in other industries. Adoption of new fuel technologies will be essential to completing the journey to zero carbon emissions, as will partnering with governments to fund the efforts and reduce the risk. Companies that get it right will create financial value as well as help save the planet. In other words, we believe that «doing well by doing good» is indeed possible.
THE COSTS AND BENEFITS OF CLIMATE ACTION IN T&L
T&L companies have a significant role to play in changing the current trajectory of GHG emissions. Heavy-duty transportation (aviation, heavy road transport, and shipping) is among the harder-to-abate sectors. It accounts for roughly 95% of all freight emissions, exceeding 4 gigatons of carbon dioxide (Gt CO2) in 2019. If nothing is done, emissions are likely to hit 7 Gt CO2 by 2050.
To be sure, decarbonizing the T&L sector requires a significant financial investment. Abatement costs are especially high for heavy road freight, air freight, and shipping—they typically range from $180 to $230 per ton of CO2, above and beyond the cost of fuel efficiency measures. But if T&L players act too late, the price tag will continue to grow over time. Given projected emissions, full decarbonization of heavy-duty transportation by 2030 would cost in excess of $1 trillion, assuming the technology exists to make it happen. The outlay will increase by $400 billion by 2050. Considering the long asset cycles in T&L, it is vital that players start taking action now. Indeed, the industry is experiencing mounting pressure from customers, employees, regulators, and investors to act on emissions.
The imperative for climate action amplifies a perfect storm of challenges that already existed in the T&L sector, including stagnating revenue and declining profitability as well as ongoing disruption from digital technology and innovative business models. To ensure their long-term survival, T&L players should launch a transformation with climate action at the center.
Unfortunately, most companies are not taking action, and those that have started have not yet been ambitious enough. BCG research reveals that among 872 transport companies, 70% do not disclose, or only partially disclose, their emissions and only 23% have set emissions targets. Of those setting targets, less than half (9% of the total) have reduced CO2 emissions versus last year. But the few goals that companies have established are too low: transportation companies are targeting, on average, a 30% emissions reduction by 2030, whereas the 1.5°C scenario requires a 50% drop across the industry by that year and a 100% decrease by 2050.
T&L companies that are pursuing tangible plans to reduce emissions have generated superior total shareholder return (TSR), according to our analysis. From 2017 to 2020, the average annual TSR of T&L companies that demonstrated a high commitment to environmental, social, and corporate governance (ESG) standards was 10 percentage points higher than that of industry peers. Although it is difficult to prove causality between ESG commitments and TSR, the correlation is striking.
From our experience, we have found that climate initiatives enable T&L companies to create significant TSR by promoting three important sustainability levers:
