Up to 70% demand volume at risk on grey portfolios in a rapid transition FIGURE 17 Global demand evolution of grey & green portfolios in 2030 vs. 2023,1 by scenario % volume change by 2030 Grey portfolioAutomotive +185%-220% +80%-140% +15%-20% +235%-3,800% +10%-1,675% +75%-1,450%Utilities Oil & gas Cement Ammonia Steel2 -15% -25% -70%-15% -25% -35%0% -5% -20%0%10% -25%10% -10% -10% -10%-5% -5% Slow transition Medium-paced transition Rapid transitionvs. green portfolio3 1. 2022 data used for steel, oil & gas, utilities. 2. Approximated by iron consumption. 3. For oil & gas sector, green portfolio is biofuels, ammonia, synthetic oil etc. Note: Scenarios here are based on IEA STEPS, APS and NZE, corresponding respectively to slow, medium-paced and rapid transition. Sources: IEA World Energy Outlook 2023, World Bank Group, CW Group, Global Cement and Concrete Association, IEA Ammonia Technology Roadmap 2021, UBS, BCG analysis.Accelerating climate regulation could decrease demand for fossil fuels and technologies As the low-carbon transition accelerates, demand for fossil fuels and related products will start to decline. In many sectors, fossil fuel technologies are already on track to be replaced. For example, even under current policies, the market for new internal combustion engine cars could decline by at least 15% by 2030 (and more than half by 2035). Under a net-zero pathway, it would even have to drop by 70%. Across major industries, 10% to 70% of demand for fossil fuels or technologies could be at risk (see Figure 17). The impact on capital markets could hit even sooner Companies could be misjudging how quickly the impact of seemingly distant developments can be felt on capital markets. Investors are forward looking and a significant portion of companies’ valuations lies in expectations for future performance. When the energy transition started in Europe, incumbent utilities hardly felt the initial impact in their business results. But once financial markets grasped the longer-term implications of a growing share of renewables and pressure on wholesale power prices, many companies lost significant market value within only a few years.47 If the transition also accelerates in other sectors, returns of fossil-based business models could therefore turn much less positive than they appear today (“grey discount”). The Cost of Inaction: A CEO Guide to Navigating Climate Risk 28

The Cost of Inaction 2024