The Titanium Economy: Capturing opportunities in the energy transition – EQ Mag Pro
In our previous article, we touched on how the Titanium Economy could shape the future of US manufacturing while creating jobs and economic opportunities in American communities. In this article, we look at how some Titanium Economy companies are pursuing sustainability as an opportunity for growth—one of the most significant in the business world today.
Consumer and investor pressures for sustainability have increased over the years, and the landscape continues to evolve, especially given the recent passing of the Inflation Reduction Act in the United States, which includes about $270 billion to accelerate the energy transition and to support domestic manufacturing.1 Many US manufacturers have made significant investments in the energy value chain in the past ten years. In this period alone, American industrial companies have reduced their collective carbon footprint by 12 percent, with signs pointing to an acceleration of these efforts. Today, companies in the Titanium Economy are finding value in sustainable manufacturing, making strides in recycled materials, solar power, and new sources of sustainable fuels such as green hydrogen.
Take clean-energy upstart Ohmium, for example, a pioneer in creating cost-effective polymer electrolyte membrane (PEM) electrolyzers to produce green hydrogen, which can be used as a heat source to power factories, a feedstock to make industrial chemicals, and eventually an energy source to help balance our grids. Ohmium and companies like it are using emerging technology to speed progress in the sectors that can make the biggest difference in dealing with pollution and climate change.
The rapid shift to electrification and sustainability has created white space across the industrial landscape and new opportunities to create and capture value.
But this is only the beginning. The rapid shift to electrification and sustainability more generally has created white space across the industrial landscape and new opportunities to create and capture value. Investors are also trying to fill the gaps: in the first half of 2022 alone, they have put almost $90 billion into companies that are developing climate technologies.
Titanium Economy companies that have focused on the energy transition and the circular economy have employed a four-part playbook to build businesses that create value for their employees, communities, customers, and shareholders:
Lead with digital. Leverage technology to prepare your company today to compete tomorrow. For example, materials manufacturer Trex’s intake of plastic bags grew so large that the company’s IT team had to refresh its computing capabilities. This led to a migration to the cloud, which gave Trex the ability to collect more data and disseminate insights more easily throughout the company, reduce the frequency of hardware upgrades, and more readily scale its computing capacity, allowing for increased production and future growth.
Innovate your products. Develop new products, services, or business models to better meet new customer demands for sustainable products. Solar technology manufacturer Enphase is one example of this: based on customer feedback, the company developed a microinverter to help fix the long-standing “Christmas tree problem” in solar: if one panel in the grid fails, the whole grid fails. The company also developed and installed sensors in its customers’ home networks that fed energy back into the grid, earning both Enphase and their customers income from their local utilities.
Pursue programmatic M&A. Use M&A to build “segments of one” in specific sustainable products or technologies. Clean Harbors, an environmental and industrial services provider, employed this approach when it acquired Safety-Kleen, the inventor of an innovative solution to re-refine and reuse waste oils. Today, the Safety-Kleen subsidiary is the largest re-refiner of waste oil in North America.
Tell your story. Be vocal about the importance of—and your role in—advancing sustainability. This could create not only a flywheel for sustainability but also tangible business value, such as attracting top talent, securing advantaged supplier relationships, and improving investor multiples. Trex has forged public partnerships and engaged media on its industry-leading NexTrex program2 for grassroots material sourcing as well as written ESG reports to disclose progress made toward sustainability targets. These efforts have supported a sustainability strategy that has achieved an enterprise value more than 25 times its EBITDA—a ratio nearly three times that of its industrial peers.
The drive toward sustainable growth has far-reaching effects, from improving the health of our communities to serving as the foundation for future American economic prosperity. Many Titanium Economy companies have been first to enter these new and growing markets. But it may take a more concerted, collaborative effort from businesses, communities, and governments to develop the American industrial base in ways that accelerate the energy transition and build a more circular economy.
Source: mckinsey
