1、Cover Iana Kunitsa/GettyimagesOctober 2024Monetizing green products How sustainability can boost your top lineSource:Roland Berger2Transforming your company into a sustainable business is challenging.Two key tasks for company leaders are enhancing corporate sustainability by investing in climate act

2、ion,and monetizing sustainability by offering green products.These are two sides of the same coin yet,in practice,many companies focus on the first task and neglect the second.In so doing,they fail to exploit the potential of their green transformation to boost their top line with the help of dedica

3、ted sustainable products that they can sell at a premium.Not only that,by squandering this business potential they miss the chance to recover at least some of their additional initial sustainability costs and to protect their margins.Monetizing green productsTwo sides of the same coinInvesting in cl

4、imate action and monetizing sustainabilityIts not easy being greenSustainable businesses must act on two frontsOrganization&processesPeople&cultureDataR&DPurchasingProductionlogisticsOutbound fPricePlacePromotionProductlogisticsInboundValue propositionMonetize sustainability by offering green produc

5、tsEnhance corporate sustainability by investing in climate action12 Improve sustainability through climate actionMonetizenewbusinesspotentialImprove sustainability through climate actionMonetize new business potentialSupportfunctionsSource:Roland Berger3Monetizing green productsCompanies would like

6、sustainability to boost their top lineBut in most cases they fail to realize a green premium Investing in sustainability increases costs but monetizing sustainability can help recover themCost effectSustainability-related net cost increaseEfficiency increaseCompanies are investing in sustainability

7、by buying alternative fuel,energy and materials and adjusting their production processesSome companies have developed green products but they fail to scale them properly and realize a green premium on themGoing green costs money.Investing in sustainability can mean buying more expensive clean fuel,f

8、or instance,which pushes up the costs of the companys products.Some sustainability actions lead to an increase in efficiency and hence cost savings but these savings are usually outweighed by the costs,at least in the initial phase.The result?A net increase in costs,which,unless the top line is also

9、 growing,puts a squeeze on the companys margins.By offering dedicated sustainable products,companies can charge a green premium.This allows them to recover at least part of their additional initial sustainability costs.At the same time,it enables them to protect their margins.In a nutshell,monetizin

10、g sustainability is not just a no-regret move,it is often a commercial imperative.A green premiumCompanies can recover the additional costs of sustainabilityDetails on next pageMonetization gap:Recover costs and protect marginsAdditional costs for sustainabilityCurrent costsMonetizing sustainability

11、 and scaling green offerings canincrease green market share and is a no-regret moveTop-line effect4Source:European Commission,International Transport Forum,Mission Possible,SBTi,Roland BergerMonetizing green productsCosts of being sustainable,whether voluntarily or due to regulationFinancial impact

12、of sustainability by industry1 No industry-specific regulatory target;EU commission GHG reduction projection for the industrial sector to achieve an overall 55%reduction by 2030 as per the Green Deal;2 GHG intensity reduction requirement as per the FuelEU Maritime Directive;3 Approximation based on

13、ReFuelEU SAF blending target;4 Absolute reduction pathway for industries without specific guidance;5 applicable at EUR 7 per kg of green hydrogen and EUR 80 per MWh of green electricity;6 Based on SAF premium at market priceTo meet the European regulatory decarbonization targets and guiding values f

14、or 2030,companies in hard-to-abate sectors will have to shoulder considerable costs.In the case of more ambitious players pursuing SBTi(Science Based Targets initiative)targets,those costs may add up to as much as 30 percent of the companys annual revenues.The precise cost level depends on the compa

15、nys location,technology and infrastructure choices,but the risk to companies profits is clear indeed,in some cases the costs can wipe out a companys annual profits entirely.Things will become even more challenging when new decarbonization targets and guiding values are announced for the period after

16、 2030.Sustainability costs and puts profits at riskRegulatorySBTiCO2 avoidance costAnnual sustainability costs as%of revenueEBIT margin at riskCement20%125%125-175 EUR/tCO210-15%60-105%Steel20%130%200-2805 EUR/tCO25-15%150-330%Ammonia20%142%4285-320 EUR/tCO215-30%90-200%Shipping6%236%230-275 EUR/tCO

17、21-10%15-100%AviationUp to 5%3Up to 30%540-7406 EUR/tCO22-20%20-180%2030 emission reduction target%Can be cut to 80-350 EUR/tCO2 with RB Procurement ExcellenceSource:Roland Berger5Monetizing green productsCosts for sustainable fuels can be largely recoveredExample:Green road and ocean cargoPremium o

18、n 100%decarbonized road and ocean cargo products as%of rate for standard productsProcurement premium1In initial discussions,customers expected a premium of 5-15%on the standard rate but in reality some were willing to pay more,especially if they could pass the premium onExamples for other industries

19、 Steel3 5-30%1 applicable at EUR 7 per kg of green hydrogen and EUR 80 per MWh of green electricity;2 Compared to emissions of cargo delivered with fossil fuels;3 For the automotive OEM end market;4 FMCG end market,representing the upper range of possible premiums;expected to decline after 2030;5 Ag

20、gregate:500-600%premium on energy(green H2 and green electricity)and 15-20%for other inputs(e.g.ferrous,fluxes and byproducts)at current pricesChemicals4 5-8%Steel5 160-170%Range 15%Range 25%Range 30%Subsidized procurement5%12%15%Customers buy green cargo products at a premium of 12-25%on the standa

21、rd rate higher than their initial expectationsPrice premium of 15-30%on standard rates for fuel/vehicles drives up procurement costs however,the existence of different decarbonized fuels/technologies offers flexibilityHow much of a green premium can companies expect from offering sustainable product

22、s?When we helped mobility companies launch a new service,100-percent decarbonized cargo shipments,their customers initially said they expected the premium on green products to be between five and 15 percent on top of the regular rate.This is significantly lower than the additional costs that a typic

23、al road,ocean or aviation cargo company would incur:Procurement costs for sustainable fuels and vehicles on road are generally 15 to 30 percent above the regular rate.However,when it came to it,we jointly identified customers actually willing to pay more,purchasing the green cargo product at a premi

24、um of up to 25 percent above the standard rate.Despite this divergence,gauging customers willingness to pay through initial discussions can help companies optimize their prices and cost recovery.How players position their green product is crucial:Customers must be made aware of how the new product b

25、enefits them,how its green credentials are verified,and to what extent they themselves can pass the green premium on to end customers.Recovering costsGreen products can sell at a premium of 12-25%Customer expectationsRealized sales premiumKey achievements Providing 100%emissions avoidance2 on specif

26、ic legs through use of biofuel Recovery of significant portion of green premium paid by shipper Key learnings Willingness to pay varies greatly between customer segments,necessitating a targeted sales strategy to successfully monetize green products In some cases,a surplus on sales vs.procurement co

27、sts can be achieved,e.g.with subsidized procurement-In one project,we secured a surplus of several million euros6Source:Mrsk Mc-Kinney Mller Center for Zero Carbon Shipping,World Economic ForumMonetizing green productsCompanies need a convincing sales narrative Green premiums along the value chainTo

28、 convince B2B(business-to-business)customers to buy a green product or in order to offer it at a premium price,companies first need to understand their customers potential motivation for buying it.This involves researching those customers current levels of sustainability and decarbonization,for exam

29、ple.On this basis companies can then define a convincing sales narrative.It is also important that they provide B2B customers with an understanding of the extent to which they can pass the premium along the value chain to the end customer.Particularly in the case of high-value goods,this can help co

30、nvince B2B customers that the cost increase falls within an acceptable range.Pass it on!B2B players can pass the premium along the value chainTo realize a green premium,companies must understand the interests of each player in the value chain and then effectively communicate how the green offering c

31、an help them achieve their goalsSuppliersOperationsB2B customersEnd consumers Achieve own decarbonization ambitions Fulfill regulatory requirements1 Maximize profit potentialPossible motivationGreen premiumSteelShippingAviation Decarbonize own operations Achieve publicly communicated targets Fulfill

32、 regulatory requirements+160-170%for energy and other inputs2+40-70%per ton of steel+12-25%per shipment+2-50%premium,depending on strategic requirements+15-30%on the standard rate for fuel and vehicles+10-200%premium on jet fuel spend1 E.g.SAF blending mandates for aviation fuel;2 Aggregate:500-600%

33、premium on energy(green H2 and green electricity)and 15-20%for other inputs(e.g.ferrous,fluxes and byproducts)at current prices;3 Rewards for green choices such as membership points or free ancillary services(e.g.priority boarding with airlines);4 Estimates for 2026;premium likely to fall beyond 203

34、0 due to technological advancements and cost decreases+1%for passenger cars or +4%for bulk cargo ships4+1-2%per product unit+3-25%premium,depending on value density of products Decarbonize own emissions(Scope 3)Achieve targets (e.g.SBTi)Meet consumer expectations Reduce personal carbon footprint Enj

35、oy additional benefits of green offerings3n/aSource:Roland Berger7Monetizing green productsGreen offerings can vary across multiple dimensions The green product design processCompanies should design their green offering to be flexible,with a suite of products meeting different customer needs,ambitio

36、n levels and limitations.This will ensure that the green offering can be taken up both by customers wanting to dip their toes in the water and those wanting to dive straight in.For the former group,products and services must be easy to implement at limited cost;for the latter,they can be more sophis

37、ticated and come with a higher price tag.Product design can vary across several different dimensions,such as decarbonization instrument(carbon credits,carbon capture,biofuel,synthetic fuels),accounting approach,scope,and degree of decarbonization.Back to the drawing boardDesign a suite of products t

38、hat caters to all customers Product designGreen product design processEnsure green products fit the industry and business by choosing the right dimensions for product design1Enhance customer uptake by building a suite of green products catering to different target groups,depending on:1.Decarbonizati

39、on ambitions 2.Technology requirements 3.Financial capacities 4.Etc.2Gather market feedback and continuously improve the offering 3 Selected product specificationExample:Green Product 1 Less ambitious customersDecarbonization instrument Carbon credits Carbon capture Biofuels Synfuels Mass balance Ph

40、ysical segregation Scope All products offered Selected products Selected regions Degree of decarbonization 25%CO2 reduction 50%CO2 reduction 100%CO2 reductionAccounting approach Example:Green Product 2 More ambitious customers Decarbonization instrument Carbon credits Carbon capture Biofuels Synfuel

41、sAccounting approach Mass balance Physical segregation ScopeDegree of decarbonization 25%CO2 reduction 50%CO2 reduction 100%CO2 reduction All products offered Selected products Selected regions Source:Roland Berger8Different dimensions for product design Example:AviationThree potential products with

42、 different levels of decarbonizationFeedstockSAF pathwayAccounting approach Decarbonization levelBundling&value-added servicesRewards1 Internal book-and-claim involves internal SAFc accounting,while external book-and-claim involves third-party trading platforms;2 Guaranteed shipping via younger and

43、more efficient fleet(lower CO2/RTM)The illustration below shows three different potential products in aviation that differ both in price and in their ambition level in terms of decarbonization.The three products the Blue,Green and Gold Decarbonizer each combine different options from the various dim

44、ensions.At the bottom of the illustration we show the different design dimensions and the options for each of these dimensions.Blue Decarbonizer Agricultural feedstock(HEFA/AtJ)External book-and-claim(SAFc)25%CO2 reduction Offset+SAF bundling Discounts on bulk purchasesGreen Decarbonizer ReFuelEU-ap

45、proved feedstock(HEFA/AtJ)Physical uplift any location 50%CO2 reduction Choose which shipment has SAF Green miles programGold Decarbonizer Waste-based or synthetic feedstock(PtL/MtJ)Physical uplift specific locations Choose which shipment has SAF Guaranteed low-carbon aircraft 2x Green miles program

46、Monetizing green productsDifferent strokes for different folksExample:Three potential products in aviationAgricultural(general)HEFAExternal1 book-and-claim(SAFc)25%CO2 reductionOffset+SAF bundleBulk discountAgricultural(ReFuelEU-approved)AtJInternal1 book-and-claim (SAFc)50%CO2 reductionChoose SAF-p

47、owered shipmentsDiscounts on cost of future purchasesWaste-basedMtJPhysical uplift any location75%CO2 reductionGuaranteed low carbon aircraft2Green milesSyntheticPtLPhysical uplift specific locations100%CO2 reductionBespoke products can be designed for specific customers Customers can purchase vario

48、us products to suit their needsSource:Roland Berger9We support companies along the entire go-to-market processSix steps to monetizing sustainability Assess green product market size Analyze and segment customer base Carry out detailed product/service design Define USP&key success factors Develop go-

49、to-market approach Perform cost analysis Assess willingness to pay by customer segment Develop sustainability pricing strategy Develop marketing approach,incl.online/offline channels,timing of customer approach Implement sales boost initiatives Set up organizational structures for product rollout De

50、velop internal education program Embed collaboration between commercial,ESG,marketing,etc.Ensure controlling&reporting on product performance Review&adjust product and marketing Monetizing green productsA six-step programEnsuring a successful product launch and conversion1.Market2.Product3.Price4.Sa

51、les5.Organization6.Continuous improvementSource:Roland Berger10Sales Introduces the green product to customers and leads deal negotiations Collects customer feedback on the green productProcurement Observes costs in supply chain,e.g.fuel prices,and decides on best purchase timing Buys fuel and provi

52、des emission avoidance data on fuelCorporate&operational functions Marketing and other function(such as IT,Communications,Business intelligence,Controlling)implement and communicate necessary changesESG Ensures alignment with ESG strategy Supports go-to-market with analyses Educates corporate functi

53、ons about the green product and sustainabilityMonetizing green productsProduct development process involves various departmentsCommercial department must take the leadTo successfully develop and launch green products,companies need a suitable organizational setup and processes.Developing green produ

54、cts requires the involvement of multiple departments,most of which have little or no expertise in sustainability.Many companies have green products but few have integrated platforms to develop and sell them.Crucially,the commercial department must take the lead in defining and calibrating the green

55、offering,underlining the fact that this is a performance topic.They take the lead in supporting the other departments,e.g.sales,ESG(environmental,social,governance),procurement as well as corporate functions to ensure a smooth rollout.The long-term goal is to educate the companys workforce and integ

56、rate sustainable thinking into the corporate culture.All departments need to work hand in hand to make the green products a success.Working hand in handMany departments are involvedDepartments involved in commercializing sustainability investmentsCommercial department takes the lead Identifies targe

57、t customer group and needs Defines product specifications and USP Derives commercial strategy,pricing,go-to-market Defines KPIs and coordinates executionSource:Roland Berger11 Although willingness to pay a premium is limited,a concerted effort can lead to significant additional revenues,help cover c

58、osts and even lead to profit on the green product Customer interest and willingness to pay varies between regions and customer groups.In general,European clients have the greatest interest in and willingness to pay for green products particularly B2C customers(e.g.fashion,automotive)but also B2B(e.g

59、.logistics)due to supply chain requirements Green products are still a relatively new concept and approaching the market requires concerted efforts to educate both the sales force and customers A strong,central green product team that backs up the regional sales force is required to ensure the succe

60、ss of customer meetings and large deal negotiations Understanding target customers is crucial insights into specific targets and announcements that have been made can form a narrative for the value add of buying green Make it a C-level priority and build a platform for working jointly with commercia

61、l,sales,procurement and sustainability Ownership and product understanding of sales teams are key success factors for distribution our project experience shows that sales teams that have these qualities manage to sell even to customers that are not fully dedicated to green products,while sales teams

62、 with low buy-in and product understanding fail to sell even to customers with very high decarbonization ambitions Dedicated IT and analytics infrastructure as well as automated processes are required to maintain high-quality green product delivery(e.g.to track the companies inventory for green prod

63、ucts,avoid double counting,track alternative fuel shipments)Standardized tools such as CO2e emission avoidance calculation support,pitch decks and information materials can support the sales force as they try to bring green products to marketHow can we support you?Our insights and experience Sample

64、learnings from green products projects in the transportation industryMonetizing green productsNeed help?Roland Berger offers support across all disciplinesMarket insightsMarket approachOwnership&organizationProcess&support structures12Monetizing green productsContributions and further contactsAuthor

65、Thor KristjanssonProject Manager+1 617 794 David Frans Senior Partner+31 6 Yvonne RufSenior Partner+49 160 744 Clment AudouinPartner+33 1 53 67-Nicolas GoetzPrincipal+49 160 744 8344 Dustin HerrPrincipal+49 160 744 Nikhil SachdevaPrincipal+44 73 8894 We would like to thank Alexandra Weixler and Malt

66、e Nowak for their contribution to this study.Akio ItoSenior Partner+49 160 744 8583 Daria KorolevaPartner+49 160 744 We welcome your questions,comments and suggestions ROLANDBERGER.COMROLAND BERGER is one of the worlds leading strategy consultancies with a wide-ranging service portfolio for all rele

67、vant industries and business functions.Founded in 1967,Roland Berger is headquartered in Munich.Renowned for its expertise in transformation,innovation across all industries and performance improvement,the consultancy has set itself the goal of embedding sustainability in all its projects.Roland Ber

68、ger revenues stood at more than 1 billion euros in 2023.About usPublisherRoland Berger GmbH Sederanger 180538 MunichGermany+49 89 9230-0This publication has been prepared for general guidance only.The reader should not act according to any information provided in this publication without receiving specific professional advice.Roland Berger GmbH shall not be liable for any damages resulting from any use of the information contained in the publication.2024 ROLAND BERGER GMBH.ALL RIGHTS RESERVED.