Most consumer companies are not on track to meet their decarbonization targets

December 5, 2023This is the first in a series of blog posts highlighting how decarbonization can create value and how consumer goods companies can formulate—and then implement—viable plans to reach their decarbonization targets across the full range of emissions.

While 39 percent of consumer goods companies have set near-term decarbonization targets for Scopes 1 and 2 emissions, only 18 percent of those companies appear ready to meet them. The figures are significantly worse for Scope 3 emissions. Missing decarbonization targets would jeopardize companies’ climate efforts as well as their future market positioning. To stay on track—and realize the potential inherent in the green transition—companies will need to be bolder in their decarbonization efforts.

Many companies have set decarbonization targets—but are not moving fast enough to meet them

The consumer goods industry is committed to decarbonization. Based on Carbon Disclosure Project (CDP) 2022 reported data, 39 percent of consumer goods companies globally had set near-term decarbonization targets as of January 2023.¹ The average emission-reduction targets for these companies are 40 percent for Scopes 1 and 2 emissions and 30 percent for Scope 3 emissions, with the first targets due in two years (see sidebar, “Defining Scope 1, 2, and 3 emissions”).

However, a significant proportion of the consumer companies we assessed are not on track to decarbonize at the required pace.² Only 18 percent of the consumer goods companies that have set near-term targets are on track to meet them for Scopes 1 and 2, while just 7 percent are on track to meet their Scope 3 targets.

Most companies’ historical annual emission reductions are significantly less than would be required to reach their near-term targets. Emission-reduction targets—and shortfalls—vary by subsector (exhibit). On average, for example, food and beverage companies have been reducing their emissions at half the rate that will be required going forward to meet their targets for Scopes 1 and 2 emissions and have made little or no progress in reducing Scope 3 emissions.

Consumer goods companies will have to overcome several hurdles to get emission reductions back on track. Key challenges include value chain complexity, limited collaboration among stakeholders, lack of clarity about the value at stake from decarbonization, and the unfavorable and uncertain macroeconomic situation—including geopolitical instability, volatile commodity markets, rising inflation, and frequent climate hazards.

In addition, many companies have yet to develop a clear and compelling business case for the necessary investment in decarbonization initiatives—which can be substantial—or are not sure what actions to take to achieve their targets in a manner that is efficient and cost-effective. This lack of clarity can lead to inaction; we will return to these issues in later articles in this series.

Transforming decarbonization efforts

The pressure on businesses to decarbonize will continue to grow. Part of this pressure will keep coming from regulators and end consumers, but increasingly, it is also originating with other businesses in a company’s downstream value chain. Manufacturers, for example, will find that the retailers they work with have ever-more-stringent emissions requirements for the companies in their supply chains. Companies that cannot meet these requirements may risk losing market share.

To get their decarbonization efforts back on track, companies will need a road map of actions to transform business operations. Consumer goods companies can make bolder moves than they have in the past, not only to achieve their targets but also to put sustainability at the core of their value proposition.

Companies looking to transform their decarbonization efforts can take the following steps, which will be explored in more detail in subsequent articles in this series:

• Identify and evaluate key abatement levers that would allow the organization to reach its decarbonization targets.
• Calculate the overall value at stake from reducing emissions.
• Establish a detailed implementation plan, ensuring financial and operational feasibility.
• Collaborate with suppliers to reduce Scope 3 emissions through value chain transparency, incentives, capability building, and program governance.
• Establish effective reporting mechanisms across relevant metrics and targets.
• Evaluate the need for—and run—programs to build skills and capabilities.

The results of a far-reaching decarbonization transformation can be substantial. A major North American dairy manufacturer recently mapped its approximately 5,000 metric kilotons of CO₂ in annual Scope 1, 2, and 3 emissions. After analyzing potential decarbonization levers, it identified 15 that could be implemented by 2030, nine of which offered a positive net present value. Based on the emissions-reduction potential of those levers, the company created a plan to hit its target of reducing emissions by at least 30 percent by 2030, with a further aim to be carbon neutral by 2050.

Charlotte Bricheux and Jonas Lehr are consultants in McKinsey’s Zurich office, where Lucas Ponbauer is a partner; Sebastian Gatzer is a partner in the Cologne office.

The authors wish to thank Rens Gerrits, Sebastian Kahlert, and Szimonetta Rasky for their contributions to this article.

¹ Our analysis of both the proportion of companies that have set targets and the magnitude of those targets is based on CDP 2022 reported data across the following subsectors: apparel, retail, and food and beverage processing. Analysis includes all companies—independent of size or market—that operate in the selected sectors and that reported CDP decarbonization targets in 2022. In total, about 8,400 companies reported targets, of which 1,073 were in the selected sectors. Targets are classified as near term if the target date is 2030 or earlier. Targets for the consumer companies ranged from 1 percent to 100 percent. The share of companies with targets is calculated as the number of companies disclosing near-term targets to CDP compared with the total number of companies in each given sector; the same approach is applied to calculate the share of emissions not covered by targets.

² Historical reductions are calculated as the CAGR in emissions reduction since the target was set. Future reductions are the CAGR in emissions reduction that would be needed to meet the target on time. Sector-level averages are weighted by the emissions of each company. A company is considered “on track” if historical annual emissions reductions are greater than or equal to the future annual reductions required to meet that company’s targets.