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Microsoft and McKinsey join forces to accelerate decarbonisation

© Shutterstocka person pressing a net zero button

Technology giant Microsoft and consulting firm McKinsey have joined forces to release an all-in-one sustainability data analysis and decarbonisation planning platform.

  • The partners’ will integrate Microsoft’s cloud-based software with McKinsey’s decarbonisation consulting experience.
  • Greater insights into carbon emissions make it easier for companies to track their progress against decarbonisation targets, but external factors remain impossible to predict.
  •  If such solutions maintain their trend, there is a risk that corporations may be distracted from progressing to the real-time implementation and execution of emissions reduction strategies.

According to Microsoft (NMS:MSFT) and McKinsey, companies struggle to achieve their net zero commitments due, in part, to a lack of targeted management expertise and data management technologies.

Aiming to address these gaps, they have formed a technological collaboration that combines their strengths to facilitate end-to-end decarbonisation planning, monitoring and execution.

“Urgent and decisive action to curtail emissions is needed if we are to reach net zero by 2050,” says Tomas Nauclér, senior partner at McKinsey and global co-lead of McKinsey Sustainability.

“By combining our tech and sustainability expertise and experience, Microsoft and McKinsey will help businesses accurately and swiftly measure and reduce their overall carbon footprint,” he adds.

Microsoft and McKinsey solution integrates fundamentals of management consulting and data intelligence

Microsoft and McKinsey’s latest announcements build on their prior collaborations, which they claim have helped clients in managing their transformation risks, modifying their business processes and digitalising their operations.

The new solution combines the capabilities of two existing products – Microsoft Sustainability Manager, a sustainability data intelligence platform, and McKinsey’s Catalyst Zero, a software for planning, executing, monitoring and reporting on decarbonisation initiatives.

By integrating their respective technologies, the partners will provide clients with the ability to combine, automate and scale their sustainability-related data collection while receiving expert guidance on potential emissions reduction strategies.

A continuous data feed between Sustainability Manager and Catalyst Zero will help users in completing the execution phase of their decarbonisation process, as it will allow companies to track ongoing performance relative to targets set.

The data can also be compared against baseline emissions, as quantified by multiples of emission factors, from more than 70 industries. Clients can use these insights to manage their decarbonisation initiatives at a granular level, tracked via a company-specific Marginal Abatement Cost Curve (MACC).

Competitive approaches aim to solve similar problems

Engie Impact the sustainability consulting division of French energy company Engie (PAR:ENGI), is among the numerous other consulting firms that are developing similar solutions to address the disconnect between corporate sustainability targets and execution. 

This disconnect was highlighted by its Net Zero Corporate Readiness Survey (2021), which involved 400 global business leaders of companies with minimum revenue of $1 billion or over 10,000 employees.

The results of the survey indicated that the majority of companies were unprepared to meet their decarbonisation commitments, while further analysis of data from the carbon disclosure project (CDP) revealed 84% of companies have defined sustainability targets in place, but only 28% were on track to achieve them.

The main challenges identified by the survey included data transparency and accessibility, a lack of cross-organisational coordination of information relating to net zero targets, and a broad failure to factor decarbonisation into decision-making and governance processes.

Fellow consulting firm Deloitte, meanwhile, has developed its own decarbonisation solution, comprising a suite of mitigation and adaptation modules that help companies to develop a climate plan. It provides projections and scenario-building to enable long-term analysis of how different strategies are likely to play out.

Corporate decarbonisation more likely to depend on externalities and willingness to act

There are many developments that need to take place outside of a company’s organisation that can have a substantial impact on their net zero plans, particularly for those that have included interim targets.

Examples of these external factors include the development of green energy capacity, the scaling of carbon sequestration technologies, the adoption of low-carbon circular economy practices, the role of regulatory policy and disclosure standards, and the decarbonisation of complex supply chains.

Economic factors will also play into corporate decarbonisation initiatives, potentially testing stakeholders’ willingness to take action.

For example, producers of price-sensitive commodities such cement, steel, ammonia or ethylene, may see higher costs during the transition period. If these high costs are likely to cause economic imbalances, stakeholders may be more wary of losing out to global competitors in their industry.

Crises such as the emergence of a global pandemic like COVID-19, or geopolitical instability and disruption of energy supplies – as seen during the ongoing conflict in Ukraine – are further examples of externalities that pose challenges to corporate decarbonisation plans.

The Intergovernmental Panel on Climate Change tells us that we are running out of time to escape an unimaginable climate crisis. While technology and expert consultancy may have their role to play in helping companies on their road to net zero, there will always be unpredictable factors that have not been taken into account.

It is important that businesses have long-term strategies in place, and it is undoubtedly useful to have targets and monitoring capabilities through which performance can be tracked.

The risk, however, is that the ongoing development of new technologies and platforms does not become a short term distraction when the time frame for effective operational action remains short.

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