Transition Risk Governance: Managing the Pivot Away from High-Carbon Business Models

Despite this article’s title around pivoting “away from high-carbon business models”, the truth is that global greenhouse gas emissions are still increasing. The Global Carbon Budget estimated a 1.1% increase in CO2 emissions in 2025. Rising incomes in emerging markets, electrification, and AI adoption are leading to rapid growth in electricity production, which is to a large degree still dependent on fossil fuels (58% globally).

Although the future trajectory of global emissions remains unclear, companies across various sectors face pressure to reduce greenhouse gas emissions (for their own operations and the supply chain). This is often driven by requirements from lenders, in some (but not all) cases from shareholders, as well as increasing carbon prices. More countries globally are gradually adopting carbon price mechanisms, either in the form of a carbon tax, or through an emissions trading scheme. The European Union has also adopted a cross-border carbon price mechanism (Carbon Border Adjustment Mechanism or CBAM), which applies a carbon price on certain imported goods into the EU.

For companies that have a heavy exposure to markets with (upcoming) carbon prices, or where lenders or customers require a lower carbon footprint, decarbonization has become an increasingly important differentiator. However, such an approach still views carbon footprint reduction as a risk-mitigation factor or because it is required. As there are decarbonization costs involved, the strategy therefore often is to reduce emissions only when and where needed and minimize decarbonization costs.

A more (financially) sustainable approach is to enter into new business opportunities, driven by the energy transition.

For example, there is a growing momentum for clean energy including fuels such as biofuels (ethanol, biogas, biomethane, sustainable aviation fuels, biodiesel, etc) globally and in (South-East) Asia, providing investment opportunities along the value chain, including in the production, aggregation and transport of these fuels. The recent developments in the Middle East and the re-emergence of energy security concerns further strengthen the outlook for biofuels in South-East Asia.

The growth of renewables will also boost the need for storage solutions (battery energy storage, pumped hydro, etc), offering opportunities in the development, installation, ownership, and maintenance of such assets. Energy efficiency services and on-site energy services (e.g. on-site renewable generation, power management optimization, etc) will be another growth area.

In summary, there are new business opportunities, from clean energy, water solutions, waste management – across the value chain, from development, installation, ownership, maintenance and services, as well as on the equipment and component manufacturing side.

Although many of these business opportunities are challenging and difficult to enter or scale, they do provide significant growth areas for a number of companies. For example, we supported a South-East Asian company active in fossil fuels to expand into biofuels and waste management, diversifying their business portfolio beyond their traditional business and expanding into new growth areas.

Adjusting the business model and corporate strategy, with new business opportunities driven by the energy transition, will prove to be a much more resilient pathway that can mobilize the broader organization, than focusing purely on decarbonization due to pressure or compliance purposes.