CASE STUDY: Carrier – The How And Why Of Design For Sustainability

Tristan Abend: Good morning again. As Rick said, last year, our presentation was more around from a high level, what it was that we were doing at Carrier with utilizing aPriori across the organization for lots of different use cases. This year, we’re really more trying to show off a particular use case that we see is going to be really important going forward for us. I think sustainability, it’s been top of mind for the past couple of years for a lot of organizations, but one thing that, at least for me, that I kept coming across when talking to people was the question of why should we be focusing in on this right now and how do we actually go about it? I think it’s a key question, and I don’t think we should necessarily take it lightly it, and just because we’ve been talking about sustainability, which doesn’t necessarily mean that we’re at a point yet where we can necessarily understand where it’s going and how we should be going about it. So I kind of want to give some of our insights today at Carrier, sustainability is part of our DNA going forward, and certainly I want to show how aPriori is going to really help us through this journey.

The Case For Sustainability

Well, as I said, the why and how, but I want to start by baselining ourselves, what is Carrier? A lot of us know what Carrier is distinctively from an HVAC company, but I think it’s also important for people to understand some of the moves that we’ve been making over this past year. We’ve been making the news quite a bit late with someone M&A activity, so hopefully I kind of wanted to show off what we are transforming into from a climate solutions company. Taking a look at design for sustainability, giving some definitions behind it, and really trying to baseline ourselves around what we’re talking about, then focusing in on some of the traditional approaches versus what we are calling our next gen approach to sustainability. Lastly, it’s important, let’s take a look at some of the metrics, yet doesn’t really mean a heck of a lot, unless we actually have metrics and results to back up what we’re talking about. And then finally, having a vision forward, what are we planning on doing next? This year is kind of the what’s next from last year. We really weren’t talking about how we could utilize the sustainability trial license that we had last year, now it’s fully deployed and we’re trying to fully deploy it in our organization.

Environmental Impact Goals

So Carrier solutions. We really are a safe, sustainable, intelligent building solutions company. We’re really going away from a traditional model where we would just sell a customer a product and that would be the end of it. We are reassessing ourselves; we are transforming ourselves into the premier leader across the world for sustainable, safe, healthy solutions to all building needs and cold chain needs going forward. In particular, as you can see, we’re broken down into three business units, HVAC, traditional or residential and commercial divisions that I think most people would know us for, that represents about 50% of our business. And then we look at our fire security business, this represents about another 30 and this represents our security division, this represents our safety divisions that are really working towards detection and mitigation as well suppression across all fire and security needs in buildings, then lastly, making up the rest of our company is the cold chain solutions, so transport refrigeration. These are container ships, truck trailer truck. Over the past few years, we’ve seen… COVID has really shown the importance of having a dependable cold chain going from cradle to grave for whatever the uses are.

The one thing that I would like to highlight though is some of the M&A activity though it’s not shown here. Recently, you would have seen we have committed $13 billion to purchase Viessmann Solutions in Europe, as well as divesting ourselves actually from fire and security. This is an important move; I think for us going forward in this pivot towards a more solutions-oriented company and actually trying to provide the complete building and energy solution to an entire home or commercial building.

Reducing Carbon Footprint

As far as what our goals are, so from a 2030 perspective. Yeah, last year I showed this slide as well. We are committed to reducing our customers carbon footprint by more than a gigaton by 2030 as well as investing over $2 billion in healthy, safe, and sustainable building cold change solutions and achieving carbon neutrality operations by 2030. This was last year, so we’ve made some changes since then. We are now committed to a science-based targets initiative. This in essence means that we are committed to be net zero by 2050. Currently, we are actually submitting our targets into science bay into the initiative committee, and they are going to be validating those, hopefully by the end of the year. So we’re moving as fast as possible as we can because sustainability is in large part of our DNA.

When we talk about sustainable solutions, what exactly am I saying? I mean, it’s a buzzword, right? So, let’s put some meat behind it. I think that’s important. When we’re saying solutions, what we are actually offering to our customers from a sustainable solution standpoint is design, enabling and delivering those solutions. So when we look at a design, we really want to work with our customers to assess what the actual needs are, and how best we can fit our products into whatever that use case is. Then we can enable these solutions through our team working with customers day in, day in and out, and working with our digital platforms abound and links. These digital platforms provide to us live data to be able to see through the entire cold chain or HVAC use case, what it is that the system is doing, and it enables us to utilize that data to better our products and to better the customer experience, especially on the aftermarket. Then finally, we look at the delivery. We want to have that recurring value, we want to get it through service, we want to get it through reporting, I think it’s important.

In the past as a company, we have not necessarily been the biggest player in the aftermarket and service side, we’ve changed that over these past few years. We are now a huge player in the market. We have seen double-digit growth every year in aftermarket and service, and that’s largely because we are invested so much in expertise and solutions to design, enable and deliver improved sustainability for all our products. So that’s Carrier, right?

Design For Sustainability

But what about me? What about my team? What about aPriori? So this is a map showing where our aPriori users are. So me and my team represent the cost engineering value engineering department, located in central engineering. We service all those BUs and all those users around the world to help find those use cases and help build upon analysis for them to be able to use. What you’re seeing here is where those users are, as you can see, in large part of those 150 users that we have active right now, most are North America, as well as a growing contingent in both India and then also Europe. Over the next three years we hope to surge that number though to 300. If we do it sooner than three years, I would be even happier. But really, we’re looking at it from a global deployment standpoint, and last year we achieved over $22 million in cost out, this year we’re projecting to 30 million. So from a team standpoint, the central team is doing great work as part of our care, your way of trying to play to win. That’s really important for me and my team to be able to help these users be able to achieve whatever their KPIs are as well.

So why now when it comes to design for sustainability? I think it comes down to three things really, at least for us and myself personally. Leadership, regulations, markets, so all three of these things put together are really striving people towards design for sustainability. Particularly a couple of the things I want to highlight that haven’t been mentioned yet around leadership. Right now, when we look at the announced policies, this would be your most optimistic scenario. We’re still looking at almost two degrees sea warming by 2050. This would go over the Paris Agreement of 1.5, so we need more action, especially by the private sector.

The Market Rewards Sustainability

And the market is going to reward it. We’ve seen it countless times. Peter has mentioned it, many other presenters on up here have mentioned it as well, that the market is striving towards going to a sustainable company and actually being able to prove that you’re a sustainable company, it’s not enough just to say it anymore. Between the SEC audits and then also scope 3 regulations coming down soon, it’s going to be important, and now more than ever to be able to back up claims. That’s why, one of the reasons why we think design for sustainability is so important, that is going to be where you can put the proof in the pudding. The sooner started, sooner done. At least in our case, as you saw, we have a truly diverse range of products across the world, all different use cases, all different design cycles. Because of those design cycles, you can be hindered on getting sustainability on out because you are going to be behind the eight ball. It’s important to get it and as soon as possible in your design cycle, otherwise you will miss the chance and you will have to wait maybe even over a year before you can come back around and get sustainability embedded into your products.

Then lastly, empowered workforce. So I think this is a really important thing to take home is having an empowered workforce trained to strive toward something, and I don’t know much else that could be more important than trying to help both your customers, but your planet be greener. Having that empowered workforce towards that mission can actually unlock a lot of productivity, greater creativity, and also greater action within the team to be able to be nimbler. That’s important for us. We are really trying to do at Carrier a huge task of getting to that one gigaton goal and getting to net zero 2050. And we do our best to make sure that all employees know where they are in that process. If we look at regulations, I think not much here is of great surprise. Markets as well, we’ve talked about the consumer rewards, but when it comes to the scope 3 audit, this is going to be the key differentiator, especially with the aPriori. Scope 3 audits are coming. We all know this, and part of that is being able to back up your data and being able to show where you were doing your calculations, especially on LCAs and EPDs, which is what we’re going to be focusing in on today when it concerning our use case of aPriori. What are the challenges that we’re currently seeing in the space?

Challenges of Design For Sustainability

For when it comes to design for sustainability, the three challenges are data fidelity, EPD timelines as well as a lack of metrics. From a historical standpoint, I think most companies are in the same boat where data is not necessarily readable and it’s not exactly in the right spot that you need to be able to accomplish our calculations. EPDs and LCAS take a huge amount of data, and this is data that traditionally companies just haven’t wanted or needed to have at their fingertips at any given time.

So for us, at least, and what we’ve been seeing over the past year is that we have a lot of systems, a few resources to be able to accomplish what we need, and then that could lead to a failure to clean an audit due to that lack of proof and due to the lack of being able to have the data. So data fidelity has been a huge issue, EPD timelines, this is something that we’re going to be focusing in on in a future slide, but EPD timelines can take 8-18 months depending on what your product you’re looking at, at least in our case. I think in the regulations, they’re coming faster and faster. Literally, we’re on calls almost every week about new regulations coming down that we need to take account for, so when it’s concerning an EPD timeline, it needs to be lined up with what the needs of the business and what the needs of the customers are.

Lack of metrics, a lot of design engineers are being asked for sustainable parts, but they have no idea how to get there. I think it’s a fair question. In the past that you may have been able to say, this is a more sustainable part for X, Y and Z reason and not be asked anymore about it, that’s no longer okay. We actually need to be able to prove on out why that’s a sustainable part and what’s the trade-off between cost and sustainability. Sometimes it’s not a trade-off, sometimes there are synergies between them, and that’s something that we’ve found, and you’ll see later on. And then lastly, supplier requirements.

Supplier Metrics

You can’t be requiring your suppliers to actually give you a more sustainable solution if you have no means to enforce that upon them. This is a challenge that we see going forward, and we don’t want to come down on suppliers, especially when they’re in their own sustainable journey. And we want to be able to support them in that, and that’s something that we’re striving towards through design for sustainability. What you’re seeing on the screen here is a traditional LCA and EPD approach. There’s going to be a lot of acronyms here, and I apologize for that, but it wouldn’t be sustainability if there weren’t a lot of acronyms. So when we look at how to begin, you have your PCR, that’s your product category rules. These are rules not set by us, not set by anyone else in the industry, these are set by third party bodies that actually help us understand what is needed to be compliant.

These PCRs are widely available. UL, a great example of where you can find a lot of the US-based PCRs. In Europe, what you’ll find is what’s known as PEP Eco Passport, that is where a lot of where their PCRs are located. So you have to decide on your PCR, that really depends on what product it is that you’re working on, for example, a space that you probably would have known that it’s been playing, getting a lot of traction lately with sustainability is commercial buildings. And in those commercial buildings, our HVAC systems can represent up to 40% of the emissions as part of that, that means that we have a major role to play in trying to reduce that and trying to show what it is that the carbon footprint is. So that brings us to gathering data. The product data really is cradle to grave, this varies, again, it depends on what your use case is, but this can take anywhere from 4-8 months. That’s a huge amount of time. And what does that really represent? It’s not really just gathering data, it’s verifying data. Maybe you’re using a third party to help you get this LCA.

That’s great, but they have to form to whatever it is that you are needing from an LCA and they have to depend on your internal resources to be able to verify what they’re finding. So really the data gathering phase 4-8 months, that moves us into the calculation phase 1-3 months, and this could be any standard software, and then finally, we get to the verification stage, 3-6 weeks, usually from a verification standpoint. That verification though is depending on the operator, that means that third party that you’re depending on. Really, we strive to having the most transparent process as possible, that’s where aPriori comes on in. But as you can see, there’s not a huge number of opportunities here to shrink it. I mean, if we look at verification of the LCA, that’s outside your control. That’s an outside operate. We look at a PCR, you’re just picking up the document. Then we go to the actual calculation, there’s some time there, but generally speaking, it’s pretty straight forward, that means we need to focus on data gathering. Then that is solely on you as a company for the most part.

Pre-Release and Post-Release Use Cases

That brings us to the aPriori solution. And there’s two categories that we really are focusing on, the pre-released solution, that’s your traditional design for sustainability and your post-release solution. And aPriori has been really plugged into both from the very beginning for us in our deployment. So starting with the pre-solution, aPriori Sustainability module is allowing us to do that quick comparison, what you’re seeing on your screen is actually a screenshot of one of our reports, as well as a seamless interface that our design engineers are used to. As you saw, we have a huge number of users and we plan to grow it. It’s great to be able to have a tool that they already know about, it’s great to have a tool that they are being able to use. That’s why it’s important for us to always best utilize the tools that we already have. That’s why the sustainability module is so critical for us. But then we look to the post-release solution. Even before if we take the sustainability module on out. Let’s just focus in on aPriori as a tool.

It already gives you a lot of information that you already needed for an LCA. If you can imagine a post-release solution, this is where your LCA data is going to be so critical. aPriori already generates all the electricity and material info for that first section of an LCA, in which that LCA is broken into sections A, B, C and D, so forth, that’s really more around your life cycle. You can imagine section A is really manufacturing, the actual mining of the material. aPriori gives you all that information, so what we have done is we’ve actually automated some of our reporting tools that we need for customers, something called TM65. This is a huge initiative going on right now in our space. And really what we’ve been able to do is utilizing expert services and the aPriori team, they were able to take the spreadsheet that we were given by one of our largest customers, and they were actually able to put it inside the tool, and now with one click I can get all the information and hand it right away to my customer, and now they understand what it is that they’re getting out of our climate solutions.

When we look at it from my business impact standpoint, third-party fees and time, part, and product design, these are savings that you’re going to be bringing back, this is where their ROI comes on in. So from a third-party fee standpoint, you could be talking tens of thousands of dollars if you were to do this on the outside of your company. That’s a huge amount of money, and that would be assuming a normal timeline. So from our standpoint, it’s really important to get design for sustainability internal to your company, and that way you can unlock third-party fees and get them out of your organization. So utilizing aPriori, we’ve actually been able to reduce our third-party fees on LCAs and EPDs and also consulting on it on our parts to put in for more design for sustainability.

Sustainability Audits

Then we look at from an auditable calculation standpoint, as I said, audits are critical for us. Audits going forward are going to be something that every single one of our… Us as a company, our suppliers and you in your own companies are going to have to deal with, we all know it’s coming. So being able to have an auditable calculation as something more standardized, scientific, repeatable, these are the hallmarks of good analysis, so it’s going to be really important for us going forward to utilizing aPriori, and we actually already have, you’ll see on the next slide, to be able to show these third party bodies that are verifying our LCAs, they’re actually able to see what we’ve been doing.

And then choosing cleaner suppliers, cleaner designs. I think both, we want to be able to choose cleaner suppliers, but we also want to help suppliers be cleaner. A lot of what we have are smaller family-owned companies that in particular are on their own sustainable journey. We shouldn’t be expecting necessarily some of these smaller companies that be on the same track as us being as large as we are. So we want to help them utilize our aPriori to be able to make themselves cleaner. That’s why when we’re focusing on quoteless sourcing, we’re actually also focusing on sustainability and design for sustainability to help them be cleaner as well. So what are the results?

And I think this is the important part, that it really is a takeaway for all of you, like what have we actually seen? What you’re seeing on your screen is from a pre-release to a post-release solution, from a pre-released solution, both costs and sustainability models are now able to be conducted at the same time. Utilizing a single plastic part, we found the opportunity to both reduce costs and emissions with a single material change. And this is just one part. Keep that in mind, think about how big your products are.

And think of if you were able to utilize one part and take $60,000 out from an annual standpoint, and then also remove 10 tons of embodied carbon, that’s a huge story. So imagine taking that into an entire product and then take into entire portfolio. Now we look at the post-release solution, and utilizing aPriori, we created the embodied carbon metrics and a cost model in two months that meant that we were able to take even more time off on the back end, which meant that we did a full LCA in 12 months. We saved six months off of our LCA process based on the analysis that one of our competitors did, which took 18. That means that we were able to get to market and get that on out there sooner and win more business.

Regulatory Framework

That’s another key win for us when it’s concerning sustainability because companies and also regulations now are dictating us to have an EPD tied to our products. That EPD means that you’re able to bid on certain projects, that EPD is a stamp of approval saying that you actually are backing up your claims. So when we look at pushing the boundaries, when we look towards what it is that we’re trying to get to, obviously from an aPriori generate standpoint, we are utilizing our PLM and ERP integrations to push the metrics out sooner. And this isn’t just sustainability though, I think in large part our journey over the past year would show that the biggest play and biggest use cases that we’re going to be seeing in the future are around sustainability.

We’re also doing this with cost. And in particular, we’re trying to work on new use cases to get these metrics out to people even sooner. Further, our internal LCA and EPD efforts. As you saw, from a design for sustainability standpoint, this isn’t a choice, it is a need. And for us in particular, as you saw, we were able to unlock a lot of third-party fees out of our system, and we were able to keep that money inside of our own company and be able to see the whole process so now it is auditable, now we understand it, and we now can increase our own ROI on aPriori.

Create standard forms for the audits. Though we don’t have the scope 3 disclosures yet coming down from the SEC, we’re trying to prepare for it. We want to be proactive. It’s really important in this space to be proactive rather than reactive, and for a long time, I think without aPriori, we would still be on our back heel, that’s why it’s so important for us to invest in this tool. Then lastly, introduce further supplier collaboration. I think this is another important space that me and my team are going to be helping on now, helping out on, and as well as our engineering sustainability teams and utilizing the aPriori tool to actually do workshops with our suppliers and working on how we can design products that are both sustainable but also reusable.

This is another important message that we are trying to hone in on going forward, because for a long time, I think the business model has shown that you didn’t necessarily need products to be reusable. It was much more of a business model. It was much better to have products that actually you just, once you’re done, scrap them. That business model is being flipped on its head, and because of that, we need tools like aPriori to be able to cost in that design for sustainability