To that end, Schwartz identified three macro trends, which he believes will fundamentally reshape the HVAC industry: decarbonization, IAQ, and digitalization. He also acknowledged some of the challenges that the HVAC industry will continue to face over the next few years.

Macro Trends

Starting with decarbonization, Schwartz stated that there are a variety of new drivers accelerating the move to low carbon energy sources and technologies, including federal and state mandates, corporate commitments, and investor expectations.

“In April, for example, the United States government announced a target to reduce greenhouse gas emissions by 50% by the year 2030,” he said. “Almost 50 cities in California have committed to phase out or curtail natural gas consumption in new construction, and similar activity is happening in the states of Washington, New York, and Massachusetts. Others are sure to follow.”

AIR PURIFIER: On the Expo floor, Ryan McArdle, product manager at Daikin Applied, explained the benefits of the company’s new portable air purifier. (Staff photo)

More than 60% of Fortune 500 companies have set their own climate action and CO₂ reduction goals, he noted, and this includes Daikin Industries as well, which is working on a net CO₂ emissions goal of 50% reduction by 2030. The company plans to achieve carbon neutrality by 2050.

Another major driver is called environmental, social, and governance (ESG), which is a key indicator that guides numerous investment decisions. This metric is important, said Schwartz, because a recent study found that firms with better ESG track records produced higher three-year returns financially and are more likely to become high quality stocks.

“When it comes to practical steps to reduce carbon footprints, buildings will take the center stage, because commercial facilities and homes account for nearly 40% of the total energy use in the United States today,” he said. “Also a tenth of total emissions, or roughly 600 million metric tons of CO₂ equivalents, come from burning fossil fuels that heat our buildings today. So while demands may vary, there will be growing pressure to cut energy use and emissions, and high-efficiency buildings and HVAC equipment are the key means to that end.”

The second macro trend, IAQ, has always been important, but the pandemic put it squarely in the spotlight and forever changed how HVAC systems will be evaluated, said Schwartz. He noted that previous measurements for heating and cooling systems, including thermal comfort, temperature, and humidity, have become insufficient in light of the pandemic.

REBEL VENTILATION: Matt Dodds, product manager at Daikin Applied, discussed the benefits of sorbent ventilation in the Rebel Applied rooftops. (Staff photo)

“HVAC now is expected to deliver more than a cozy environment,” he said. “It’s central to the overall health of a building and its occupants. Comfort, safety, wellness — these are the new metrics for HVAC equipment in the future. There is growing clarity that it’s not just about reducing the spread of the virus — better air quality produces better benefits.”

Schwartz said there is a substantial amount of evidence that shows optimal indoor air conditions can result in increased cognitive function and productivity and lower absenteeism. For example, children in classrooms with high outdoor air ventilation tend to achieve higher scores in both math and reading. Poor indoor air conditions, on the other hand, can cause aggravated issues that include asthma, allergies, fatigue, and poor mental health.

“A recent study of 3,000 workers across 40 buildings showed that 57% of all sick leave was linked to poor ventilation,” he said. “In fact, a majority of The Nine Foundations of a Healthy Building identified by the Harvard School of Public Health have a direct connection to HVAC. As a result, people [at this meeting] have an opportunity to effect lasting change. And those who do have a significant advantage, as better IAQ means better ROI for clients.”

The third macro trend, digitalization, involves all the data that is — and will be — created as a result of sensors that measure everything in our environment.

“The amount of data created over the next three years will be more than the data created over the past 30 years, which is really staggering to think about,” he said. “That data is from sensors, which will soon surpass all other data types. IoT sensors are measuring just about every aspect of the physical world — our bodies, our homes, our cars, and yes, our buildings and HVAC equipment.”

Chillers are a prime example, said Schwartz, as they gather hundreds of data points in order to measure performance. Now consider multiplying that by all the equipment to operate a facility, which includes sensors collecting temperature, humidity, occupancy, and air quality data, and that’s a tremendous amount of data and information.

“Digitizing building systems is not new — converting the analog to digital has been going on for decades,” he said. “But we don’t just need 300 data points from a rooftop unit, we need the data to help us improve outcomes. So the next step is digitalization — turning data into practical, actionable insights to transform processes to improve performance. The bottom line is companies that can turn data into valuable streams will have a leg up and be able to accelerate efforts to reduce environmental impact and improve IAQ.”

Schwartz lightheartedly coined the term ‘decarbitalIAQization’ to distill all three of these macro trends into one term. Cutting carbon emissions, increasing IAQ, and improving outcomes through data should not be three distinct actions: there should be overlap, especially when it comes to solutions to meet these demands. Daikin Applied is focused on designing, building, and delivering technologies and services that move customers and the world at large forward on multiple fronts, he said.

Challenges

While the above-noted trends present exiting new opportunities for the HVAC industry, there are also challenges that will need to be addressed. In a follow-up conversation, Schwartz discussed how the equipment and labor shortage will likely be issues for quite some time.

“The global microchip shortage is definitely impacting our industry, particularly with variable-speed motors and compressors, because they all have microchips as part of the controls standard,” he said. “So we’re seeing some real challenges and problems in the marketplace, and they’re not going to be resolved in the next six months. I think this is a longer-term issue.”

It’s a problem that is affecting all of Daikin’s factories, said Schwartz, because suppliers are not giving advance notice about what they intend to deliver. Instead, factories are counting on certain deliveries to show up, but when (or if) they do, they are often short.

“Our factories don’t have a lot of notice about when a product will be delivered,” he said. “That creates huge problems, because then we have to shift schedules based on what parts are available to produce and build. I’ve never seen anything like it in the industry, and I’ve been here almost 40 years.”

One of the reasons for this shortage is that the recovery from the pandemic last year came very quickly, which caught everyone off guard, said Jeff Drees, executive vice president of Daikin Applied.

“We didn’t expect the recovery to be that fast, and I think our suppliers had the same problems as we did,” he said. “It just hit fast, and we saw a huge spike, and so did everyone else. There was no capacity, then all of a sudden, everyone had a demand at the same time that no one can keep up with. I think this is a wakeup call for the supply chain. Companies are building out capabilities closer to customers in the markets, and with COVID, people are rethinking where they put production.”

Labor problems are also causing equipment shortages, as not enough people are available to work in the factories. While this issue has been plaguing the HVAC industry at large for years, the enhanced unemployment benefits offered through the federal CARES Act in response to the pandemic may have discouraged some from joining the labor market.

“Human capital has been a significant constraint,” said Drees. “Everyone is looking for skilled trades right now. They’re offering signing bonuses, great benefits, and an increased hourly wage. Everyone’s fighting for the skilled trade talent right now, including Daikin.”

That is why the company has worked so hard to build a culture that is open, welcoming, and inclusive, said Schwartz.

“At the end of the day, people have a lot of choices of where they go to work, and we’ve built an environment where people seem to enjoy working,” he said. “And if you don’t believe me, ask our people. Talk to them and ask them the hard questions. We are looking for all kinds of employees, from engineers to service techs, and we’re really trying to get the word out. So, my message is, come on board — we have great opportunities, and we’re growing.”