Net Zero Business Models

PROLOGUE

Inverness, California, and Toronto, Ontario

29 September 2022

During our collaboration on a project to make the strategic duties of corporate directors explicit under Delaware law, we noted that BlackRock Chairman Larry Fink's 2021 letter to CEOs demanded that businesses prepare plans to conform their business models to a net zero emissions economy but the letter had little guidance on how to do so. We suspected that most companies would grossly underestimate the magnitude of the transformation required to conform their business models to a net zero emissions economy and be commercially successful.

To test this hypothesis, Credit Suisse HOLT^® helped Mark and his FutureZero team stress‐test over 14,000 public companies with available carbon data for a hypothetical carbon price of $75 per metric ton of CO₂ emissions. The stress‐test revealed that every industrial sector except energy has material capital markets securities mispricing risk relative to the prospective carbon shock. This stress test scenario analysis only included Scope 1 and Scope 2 emissions. The analysis suggested that more than 40% of the companies analyzed will require a complete transformation of their business models to achieve net zero.

The stress‐test showed a clear need for Net Zero Business Models because the prevailing conversation greatly underestimates the risk to individual companies, specific industries, and the overall financial system posed by a potential real carbon cost and does not ...