Net Zero Business Models

11A FOUNDATIONAL FRAMEWORK TO CHOOSE A PATHWAY

“Value is created by earning economic returns above the cost of capital.”¹

—Bartley Madden

THE INNOVATION AND RETURN ON CAPITAL LIFE CYCLE

Analyzing a company's performance using Bartley Madden's four value quadrant innovation and life cycle framework will guide companies strategically to choose the appropriate Pathway to net zero.² The framework has four stages: (i) Value Quadrant 1, early growth, the high‐innovation stage; (ii) Value Quadrant 2, high‐performance, the competitive fade stage; (iii) Value Quadrant 3, cash cow, the mature stage; and (iv) Value Quadrant 4, the failing business model stage.

Applying this strategic framework for innovation and capital allocation will also inform a company about its transition plan, clarify its transition burden, and suggest how to finance it. Depending on a company's stage of growth, it may finance its net zero transition plan in three ways: reinvesting profits in the business, borrowing money (debt) or selling equity. This framework may be particularly helpful for companies inclined to choose Pathway One as the path of least resistance because it would allow them to continue business as usual and maintain their current business models.

Exhibit 11.1 depicts how companies generally move through these four stages over their lifetime.

EXHIBIT 11.1 The four stages of innovation and ...