By: Madiha Javaid, Andrea Lam, John DeNavi
When did everything become so smart? Smart phone, smart watch, smart car, smart home….it was only a matter of time then before super bowl stadiums and skyscrapers got wise to the trend. One company in particular is leading this smart-ification – Johnson Controls, a 130-year-old organization that is shaking off its automotive roots and stretching outside its comfort zone to prepare for a generation characterized by energy and efficiency.
Over the past few years, Johnson Controls, a Fortune 100 business, has spun off its core electronics and automotive BUs and acquired the building solutions company, ADT, and flow control business, Tyco, effectively betting the farm on energy technologies and building efficiency solutions. Johnson Controls is building a business that connects every facet of the smart building; air conditioning, light bulbs, security systems, windows, all able to connect to each other and to the internet, with data being used for energy efficiency and productivity gains.
The International Energy Agency estimates that investments of $1 trillion annually into low-carbon energy solutions by 2030 is needed to avoid the catastrophic effects of climate change[1]. Two of the highest priority actions include improving energy efficiency in buildings and vehicles, both of which represent the fastest, cleanest and most cost-effective way to reduce greenhouse gas emissions.
Johnson Controls is one of the first movers in what will be a mass migration of US industrial companies to technology based energy efficient solutions that seamlessly connect urban and natural ecosystems. Changes to the regulatory landscape, such as the Paris Climate Accords and G20 mandatory fuel economy standards, are driving a technology shift in buildings and the automotive industry, and placing increased pressure on companies to extract every ounce of efficiency in order to meet regulatory standards and sustainability goals.
Organizations like GE, Morgan Stanley, and even NBA franchises[2] are searching for solutions and it is Johnson Controls who are helping them overhaul their offices and sporting arenas to solve their emissions problems. They have developed products such as Metasys, a building management platform that balances HVAC, lighting, and security systems, and monitors water, gas, solar-power and grid provided electricity for optimal operation, literally opening doors and windows to reduce energy consumption.
Per the 2016 energy efficiency indicator survey, Brazil, China, Germany, and India showed that 72% of the more than 1,000 companies surveyed expect to increase their investment in energy efficiency over the next year. This provides massive potential for Johnson Controls to expand their operations in these markets.
In the transportation segment, Johnson Controls has pivoted away from traditional automotive products like seating and plastics to focus on energy storage technology especially in the Chinese market. Regulations are becoming stricter; for instance, in 2016, China mandated that passenger vehicles must achieve a fuel consumption target of 5L per 100KM in 2020, versus 6.9 liters per 100KM in 2015[3].
In June 2017, Johnson Controls opened its second global headquarters, located in Shanghai, to directly address the massive market for efficient energy systems in China. They have invested hundreds of millions of dollars into battery technology such as Absorbent Glass Mat (AGM) technology. AGM is at the heart of the stop-start engine technology that automatically shuts off the engine when the car is idle at traffic lights or curb side. They recently committed another billion dollars to increase global AGM production[4].
Johnson Controls has also adapted its own systems and processes to ensure that they are addressing climate change, reducing the energy output of their US operations by 21%, and a 41 % reduction in greenhouse gas emissions intensity[5].
Whilst the opportunities remain abundant for Johnson Controls, they also face some significant threats. Regulatory uncertainty continues to be problematic, highlighted by the US’s recent withdrawal from the Paris Climate Accords. Such regulatory uncertainty extends to incentives, that if discontinued, could severely impact the demand for energy efficient buildings and batteries for energy efficient vehicles and make energy efficiency considerably more expensive[6].
Furthermore, new entrants such as Google, Amazon, and Apple are disrupting the Johnson Controls stranglehold on building management technology, specifically in the residential sector. For example, Google purchased Nest for $3.4Bn and Apple launched HomeKit, and they are both coupling these systems with voice activated products like Amazon’s Alexa to create a home that adapts to your patterns and manages energy more effectively.
If Johnson Controls is to remain at the forefront of reducing energy consumption and greenhouse emissions, they need to shift consumer sentiment to embrace the low cost options that exist today which can already incrementally chip away at energy consumption, particularly in the residential segment. Large scale adoption will not happen unless there is financial incentive to do so; altruism alone is not enough. There are many off-the-shelf building and energy storage technologies that can improve energy and fuel efficiency, all of which create savings for consumers to pay for the improvements over time. These savings need to be the cornerstone of the platform driving consumers to clean energy technologies today, with the full range of economic, social and environmental benefits following closely behind.
[1] http://www.johnsoncontrols.com/-/media/jci/corporate-sustainability/reporting-and-policies/files/johnson-controls-cop22-position-statement.pdf?la=en
[2] http://www.johnsoncontrols.com/insights/2017/enterprise/features/johnson-controls-named-official-smart-building-partner-for-new-downtown-milwaukee-arena
[3] http://www.johnsoncontrols.com/media-center/news/press-releases/2016/09/28/johnson-controls-agm-battery-wins-china-automobile-and-parts-award
[4] http://www.johnsoncontrols.com/media-center/news/press-releases/2017/02/02/johnson-controls-us-battery-production
[5] http://www.johnsoncontrols.com/corporate-sustainability/environment
[6] http://otp.investis.com/clients/us/johnson_controls/SEC/sec-show.aspx?Type=html&FilingId=11705772&Cik=0000833444
I was having a discussion with them in Dubai – it’s actually impressive how green many buildings are in the city perceived as careless towards environment with excess of consumption and waste.
Though I would question the logic of running that many chillers in the middle of a desert.
Indoor skiing anyone?
https://en.wikipedia.org/wiki/Ski_Dubai
It is reassuring to see an organization take CSR truly to heart. At over a century old, their willingness to evolve with the demands of society is a noble precedent to set. Being among the Fortune 100 proves financial performance and environmental accountability are not mutually exclusive.