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The net zero transition will require $3.5 trillion in extra investment each year, McKinsey estimates

January 25, 2022, 11:50 AM UTC

Good morning.

As ever more companies commit to a “net zero” transition by 2050, it’s worth asking: How much is that transition going to cost?

An army of McKinsey researchers have come up with a plausible estimate that they are releasing today. It’s a big number: $275 trillion in capital spending on physical assets by 2050, or $9.2 trillion a year. Of course, a lot of that investment is already happening. But McKinsey says the increase in investment needed would be $3.5 trillion a year.

That’s a lot of money. To put it in perspective, it’s roughly one half of all global corporate profits, one quarter of all tax revenue, or 7% of household spending. The McKinsey report is silent on who picks up the tab.

In addition to all that spending on physical assets, the climate transition also will lead to human disruption: an estimated loss of 185 million jobs by 2050, offset by a gain of 200 million new jobs. That means no shortage of jobs, but a challenge to provide “needed support, training and reskilling” during the transition.

Now you may look at those numbers and be tempted to say: “Whoa, let’s not do it, and save the cash.” But there’s a cost there, too. First movers will benefit by reaping profits from the transition, while latecomers will pay an added price. A separate study out this morning from Deloitte concludes insufficient action on climate “could cost the U.S. economy $14.5 trillion in the next fifty years,” and the loss of nearly a million jobs. “We have a narrow window of time—the next decade—to make the bold decisions needed to change our climate trajectory and reach a turning point,” said Alicia Rose, deputy CEO for Deloitte U.S. “The decisions made by governments, businesses and communities would reinforce our early progress and could unlock extraordinary economic possibilities for the U.S.”

Separately, check out this week’s Leadership Next podcast—an interview with Steve Case, CEO of Revolution, an investment fund dedicated to building start-ups in places other than San Francisco and Austin. Case, who made a fortune running AOL, says the pandemic has “broken the lock” that Silicon Valley and a few other places had on new tech investment, allowing talented people “to think about work and life in a different way.” 

Case makes the case for my hometown of Chattanooga, Tenn., as one of his proof points. “Chattanooga is actually proving to be an interesting startup city,” he said, thanks to an early investment in high-speed broadband and a heavy concentration of trucking and logistic companies. “It’s the best place to launch a start-up focused on trucking.” You can listen to the podcast on Apple or Spotify. More news below.

Alan Murray
@alansmurray

alan.murray@fortune.com

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This edition of CEO Daily was edited by David Meyer.

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