The energy transition is proceeding, but unevenly

Each year, McKinsey convenes leaders alongside the UN Climate Change Conference (COP). At COP30 in Belém, Brazil, we will host events focusing on accelerating the energy transition, climate technologies, natural capital protection, and investing in climate adaptation and resilience solutions. MGI will contribute research and perspectives, including new research on the physical realities of the transition.

Taking stock of progress on the physical challenges of the energy transition

Today’s energy system, while integral to the global economy, generates the vast majority of global CO2 emissions. Our 2024 report identified 25 physical challenges for this transition, grouped into three levels of difficulty. In a new update we find that, as of 2025, an estimated 13.5 percent of deployment has been achieved, with progress lagging behind Paris Agreement targets, as the authors write in Fortune. Deployment has been concentrated in critical minerals, low-emissions power, and electric vehicles with little movement in hydrogen, carbon capture, and low-emissions technologies for steel and other key materials, highlighting the need for fresh ideas and solutions.

• The outlook for the hardest physical challenges of the transition has worsened amid project cancellations, slow technological progress, and policy shifts. Yet bright spots remain such as improved range for electric vehicles and renewable deployment.
• Understanding the physical realities of the energy transition clarifies the scale of the task ahead, helping leaders set priorities, identify bottlenecks, and pinpoint areas of opportunity where progress is emerging. 

Beyond ESG: From checklists to capabilities

The framework for assessing environmental, social, and governance (ESG) issues, has expanded significantly, leading to a 30 percent increase in ESG-related KPIs tracked by C-suite members from 2018 to 2023. However, as we noted in our recent report, this rapid growth in ESG checklists has caused a certain fatigue, with declining media attention and shareholder proposals in the United States in 2025 compared to 2024. A capabilities-based approach can help business leaders set a strategy and sharpen societal choices about the use of public resources.

• ESG compliance can prevent societal harm, but historically, companies have had societal impact through targeted innovation. Many issues related to health, infrastructure, and the environment have been solved as incomes increased. In other cases, an iterative dynamic of innovation and targeted policy adjustment accelerated change.
• A narrow focus with the right collaboration and time frames can enable companies to meet business and societal goals. A typical corporation can make a real difference on just one to three of 18 societal issues we analyzed. Going beyond a checklist approach, large companies can pursue a “horses for courses” strategy that deploys their specialized ability to innovate and scale solutions.

Upcoming events

• Register for MGI’s online event on November 13, “Beyond ESG: From checklists to capabilities”
• Register to watch the FT Live event on November 12, “Climate adaptation as opportunity: Investing in resilience and technology”

Related reading

• Read the article, The hard stuff 2025: Taking stock of progress on the physical challenges of the energy transition, by Mekala Krishnan , Tiago Devesa , Chris Bradley , Humayun Tai , Sven Smit , and Carlo Tanghetti
• Read the report, Beyond ESG: From checklists to capabilities, by Sven Smit, Kevin Russell , Michael Chui , Nick Leung , Michael Birshan , Clarisse Magnin , Francisco Garrido , and Francisco Galtieri  

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