How the ‘Lucky Country’ can seize the green business opportunity

July 20, 2023A ‘hyper-scaling’ approach to clean-tech development may be the key to unlocking Australia’s extraordinary growth potential from energy transition.

To achieve this hyper-scaling effort, several key elements are required:

• An ‘unreasonable level of ambition’ to match the extraordinary pace demanded by decarbonisation commitments
• A hyper-scaling model to build physical products at digital speed
• A global mindset to convert Australia’s natural endowments into global solutions that help the planet and power our prosperity in a Net Zero economy.

These were some of the key insights from the first Green Business Building (GBB) Forum Australia, held in Sydney on 12 July, 2023. GBB Forum Australia is the latest in McKinsey & Company’s international series of events – which bring together leaders from the emerging cleantech sector, market incumbents looking to grow new businesses or decarbonise their operations, and leaders from investment and financing who are looking to support both sectors through innovative capital deployment.

The transition to low-carbon energy and materials naturally holds a particular weight in the Australian context, and GBB Forum Australia explored major new value pools including clean energy exports, low emissions fuels and vehicles, circular consumer products, credible carbon offsets, energy-intensive industry relocation, and maximising Australia’s endowments of the minerals needed for a net-zero world. Opening the event, Head of McKinsey Sustainability in Australia & New Zealand, David Dyer, noted the unique position the country has in the global transition – being both an historic supplier of carbon-intensive energy and resources, but also richly endowed with the natural resources, export infrastructure, strong trade relationships and the talent to grow and prosper from new and clean technologies, “if we have the ambition for it”.

“There’s reinvention required here, and that is Australia’s opportunity,” he said. “We are blessed with abundant wind and solar resources, and the minerals required to build a low-carbon economy. We also have smart, energetic, entrepreneurial people, a track record of innovation and a hard-won reputation as a safe jurisdiction for investment and a reliable trade partner, with proximity to major markets in Asia. The ‘Lucky Country’ has the resources, and the knowledge, technical and social capital at hand to maximise them sustainably. But what we’re hearing today is that we will need to compete for that opportunity, and we all need to dramatically scale up our ambition, if Australia as a nation, and Australia’s businesses, are to seize that opportunity.”

This potential, and urgency, was mirrored in keynotes from leading figures in Australian science and business – reflecting on the multiplicity of new economic opportunities in which Australia possesses natural advantages; from clean energy exports, to carbon removal, from value-adding minerals required for electrification, to innovative energy storage solutions, and more.

Perspectives provided by major resources and finance incumbents confirmed the extraordinary potential of clean-tech to support decarbonisation and unlock new areas of growth, with transition plans of varying maturity now active in every major incumbent in every sector.

This insight was only strengthened by the perspectives of visiting McKinsey Sustainability leaders, Rajat Gupta (Mumbai) and Harry Bowcott (London), who challenged the audience to consider which of them would be amongst the 300 ‘decacorns’ (new green businesses which achieve $10B+ capitalisation) that would need to emerge to capture this generational opportunity. McKinsey estimates that $US9.2 trillion in green capex will be needed globally year on year in the next 30 years – representing 7.5% of global GDP, and constituting the largest shift in capital since World War 2¹.

Gupta and Bowcott outlined how 30 years of global economic transition is being compressed into 10, meaning both new and incumbent businesses will need to deploy and develop innovations with a boldness and ambition that would seem unreasonable in any other context.

“Quite bluntly,” said Bowcott, “if you have a reasonable idea, you need to run at it with unreasonable ambition! Because that is what this moment requires.”

Participants throughout the day agreed scaling won’t happen by companies ‘going it alone’, or via ‘business as usual’ approaches. Achieving scale will require coordination among incumbent players, and disruptive innovators, investment and financing institutions, and governments and regulatory bodies. It will require new operating models and often entity structures, paired with the right partners along the value chain, with shared strategic interests and a willingness to work differently together.

To support this hyper-scaling challenge, McKinsey outlined an emerging ‘launch formula’ f or new green business builds that are aiming for decacorn (or greater) growth. This encompassed:

1. Leading with game-changing ambition. This is about scale and speed. Look to solve problems, not just tweak, and think 5 years, not 15, in terms of maturity.
2. Assessing technology pathways. Think broadly and collaboratively, and assess performance breakpoints before committing to scale.
3. Securing cost advantage. Identify the scaling point to reach viability asap.
4. Signing up captive demand early. Invite customers to invest. Lock in as much forward demand as possible to leverage investment.
5. Delivering capital excellence. Strive for modular and replicable production, creating savings on speed and cost. Aim for 15% faster and 20% lower cost, or, as described by Bowcott, “creative innovation followed by ruthless standardisation.”
6. Proactively create a sourcing advantage. Collaborate across value chains to make sure the critical infrastructure and partnerships are in place for sustainable deployment.
7. Building talent and capability to out-execute. Attract the best talent and build organisational ‘superpowers’ in 1 or 2 critical capabilities.

GBB Australia was consistent with McKinsey’s Green Business Building Forums globally in drawing out the need for hyper-ambition to drive hyper-scaling. Both McKinsey experts and guest speakers continually reinforced how demand for cleantech and transition solutions – driven by consumer preference, regulation shifts and technology innovation – is far outstripping supply; meaning businesses which can innovate and scale rapidly are setting themselves up for exponential growth.

“What we’re also hearing from speakers and participants alike today is that we need to take a 10x or 100x approach to scaling the many brilliant clean-tech innovations that Australian businesses are already developing”, said Dyer, at the close of the day.

“To state the obvious, this global challenge needs global solutions that can be deployed at global scale. That is Australia’s opportunity to seize.”

McKinsey & Company’s GBB Forum Australia 2023 was held on 12 July, in Sydney. If you’d like to know more or register for GBB Australia 2024 please contact the GBB Forum Australia team. You can also find out more about McKinsey’s Green Business Building capabilities, and discover our latest insights on scaling green businesses for leaders.

_{1 McKinsey & Company. The economic transformation: What would change in the net-zero transition. 25 January 2022.}