Value chains connect producers and consumers, adding value to the product from its initial design to its delivery to the customer. Net zero value chains, however, mean systems that serve human needs, for access or mobility for example, and emit next to zero greenhouse gas emissions through operating in a circular, renewable, regenerative and waste-free manner. That at least, is the vision the Exponential Roadmap Initiative is developing.
Vargas Holding’s ambition is to reduce one percent of global emissions through building impact companies that create climate solutions, from energy storage (Polarium), batteries (Northvolt) to green steel (H2 Green Steel).
At the recent UNFCCC climate change conference (SB60) in Bonn, Germany, the CEO of Vargas Holding, Carl-Erik Lagercrantz and Johan Falk, CEO of the Exponential Roadmap Initiative, discussed the progress in financing climate solutions and advancing net zero value chains.
Transforming value chains
One of the greatest opportunities of this generation, and the next, was the need for developing an entirely new kind of industrial platform.
Carl-Erik Lagercrantz:
I think the platform that will be developed is a fantastic opportunity from a business perspective and from a societal perspective. One needs to think very thoroughly on how to go about orchestrating a change or being a part of that change in a vertical. We like a greenfield approach, meaning that we look at all the reasons for building a new value chain in a certain geography, creating competitiveness, aligning with customers, close collaboration with technology suppliers and a close relationship with the financial community. Knowing what they want to see, knowing how you can create bankability and a close alignment with the policymakers in different geographies around the world.
Focussing on the exponential transformation of value chains is necessary to achieve net zero, added Mr Falk.
Johan Falk:
The previous thinking has been looking at the individual companies and this idea that you can achieve net zero by just looking at your company or your suppliers. I think that thinking is now gone. The way forward is to take a completely new approach and that’s the only way to accelerate the transformation. What is essential is to take a complete approach, both in terms of radical innovation, how we reinvent the value chains, but also that we need completely new ways of thinking in terms of financing and funding. This is where I think Vargas is in the front line.
The role of investment and collaboration
Mr Lagercrantz highlighted the challenge for carbon-heavy companies to revamp themselves. He also stressed the need for collaboration with customers, technology suppliers, financial institutions and policymakers to create both bankability and scalability.
Carl-Erik Lagercrantz:
It’s very hard to totally revamp if you are carbon-oriented, which however is the case for most large companies that were built in this carbon-heavy past. You need to have new value chains and then reflect on what it is you’re going to build. Well, there is plenty of technology out there which is low carbon and I think that is an opportunity for a company like us where we come at it with no presumptions on what you can do and should do.
Mr Lagercrantz noted that successful partnerships are crucial for achieving sustainable growth.
If it’s IKEA or Scania or Microsoft, they want to be supported by low carbon value chains. And that is true for all aspects of their products, whether it’s polyester or steel or aluminium or batteries. That is going too slow for them.
Therefore, they are perfect partners. The way we go about it, is to create that partnership from a customer perspective very early on to enable their strategy. These companies don’t want to build a steel plant or a battery plant or a polyester recycling plant – but what they do want, dearly, is low carbon material which is sustainable for their long-term success.
This is where we come in as an enabler for that, but we are also an enabler for the policymakers, the ones who say we need to go in this direction, and we are providing support in different dimensions. A lot of the legacy players in respective industries will say it’s very hard, we need more money, we need more support, but then if you look at it with a greenfield approach, that’s what you can provide.
Mr Lagercrantz noted that countries for instance with abundant renewable energy capacity had the opportunity to seize competitive advantages in constructing platforms for the new low carbon economy.
Carl-Erik Lagercrantz:
Now we have an opportunity to build back the new type of platforms that are in the right geography with the right low CO2 footprint, which is also highly efficient because we’re building with the latest technology. So, on top of the decarbonization, I think we’re providing excellent cost competitiveness and providing an opportunity to do something that has not been done in a long period of time, and that is to integrate the value, the industrial value chain that we’re looking at.
Mr Lagercrantz also noted that conditions were changing also for companies – that it was no longer sufficient for a company to be good at delivering only at a certain part of the value chain.
Carl-Erik Lagercrantz:
You need to be vertically integrated in order to capture the value in the value chain that you’re working with. So, it becomes in a way complex, but when you are able to do that, you’re able to unlock a lot of value. And your customers want that because they want that low carbon product at the right price.
It’s not about developing a technology which is not existing today, it’s about going into and establishing the right technology in the right energy geography, a value chain that can support big time decarbonisation for hard to abate sectors. So far, in our companies that we started from scratch, we have raised more than $23 billion.
Next generation value chains are all about partnerships, Mr Falk agreed, adding that showcasing examples of successful net zero value chains was an important way to influence more companies on the transition journey.
Johan Falk:
If companies are not part of the next generation value chains, they will disappear from the market. It’s about survival and being able to grow over time. There is a tremendous opportunity for business model innovation, as well as financial model innovation. It’s not only good for the planet, but primarily a good strong investment. To be able to show these examples so they can be duplicated, maybe remove some more blockers in terms of unlocking funding from institutions, which can enable even more capital, and also investments in the Global South, it’s incredibly exciting.
Global opportunities and challenges
Discussing the global perspective, Mr Lagercrantz identified opportunities for developing nations to build next-generation industrial platforms.
It’s a great opportunity for other developing regions to build a next generation industrial platform. There are plenty of regions where you can establish a next generation industrial platform, low carbon, which could then provide societal growth, meaning that you are adding value by creating jobs and all of the aspects of how a growing industry impacts society.
There will be a lot happening in Brazil. They have a forward-leaning approach. They could be a powerhouse as a low carbon industrial platform for both South and Central America.
While emphasising the potential for business models and financial innovation to unlock further investments and support global decarbonisation efforts, Mr Lagercrantz and Mr Falk acknowledged that funding and partnerships were both key in the transition towards net zero value chains.
