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ESG. These three letters are becoming the most important abbreviation in the corporate world. They stand for “environmental, social, and governance.” What they mean is company leaders now have to consider not just their shareholders but their stakeholders. These include their workers, the people in the community, and even the entire ecosystem.

ESG funds are experiencing a record year, as more investors, such as pensions fund managers, are making it a top priority when deciding where to put their money. There’s also evidence that potential employees and even potential business partners take ESG into consideration. That’s good news for the HVAC industry, as it plays a major role in addressing environmental concerns for companies.

“It’s the new framework for meeting expectations — external and internal,” said Scott Tew, vice president of the Center for Energy Efficiency and Sustainability (CEES) at Trane Technologies.

Many companies have already addressed the easiest ways of reducing their carbon footprints, such as replacing the lighting systems, said Brenden Millstein, president of Carbon Lighthouse. Now they have to tackle the big issue — HVAC. Since commercial buildings make up 40% of the world’s carbon footprint, Millstein said, and HVAC makes up about 40% of that, this is where the real gains are to be made when it comes to reducing energy usages and emissions.

“It’s the biggest bucket of the biggest bucket,” Millstein said.

A New Kind of Partnership

That’s a tremendous opportunity for the industry. In fact, some analysts see it as a major driver for HVAC manufacturer performance in the next decade. These opportunities range from using digital tools to reduce energy usage to the ongoing refrigerant transition to helping companies move away from using fossil fuels, said Rajan Goel, senior vice president of the Building Solutions Group at Carrier Corp. Goel said companies understand the need to meet ESG goals and are seeking partners to work with them.

HVAC manufacturers, in turn, are looking to their suppliers to help reach goals such as lowering overall emissions. Tew said Trane wants its preferred suppliers to share the company’s commitment to reaching a net-zero carbon status. Trane works with these suppliers to develop a plan to achieve that goal, realizing it will take time, he said.

“That’s new way of working,” Tew said. “It’s a different type of partnering and collaboration.”

Big Challenge Calls for Big Goals

Both Trane and Carrier leaders have made large, public goals when it comes to reducing corporate carbon footprints. Both companies have the goal of reducing one gigaton — or one billion metric tons — from its customers’ carbon footprint by 2030.

WORK ENVIRONMENT: One of the ways HVAC helps meet ESG goals is by creating a safe and comfortable workplace for employees. (Courtesy of Carrier)

“Many of our peers and competitors in the industry are making bold commitments, which we think is very, very important,” Tew said. “You need a bold, public commitment because that sends a signal both internally to your employees about the seriousness of the problem you’re trying to solve, and to your customers and the marketplace that you want to join them in the journey.

“We won’t get there alone. It will take a collaborative effort.”

These companies are making financial commitments to these goals. Carrier announced that it will invest more than $2 billion over the next 10 years toward the development of healthier, safer, and more sustainable building and cold chain solutions. In addition to also investing in R&D, Tew said Trane is making meeting ESG goals part of its annual review process.

“If it’s real priority for your company, you should be tying it to compensation,” Tew said.

ESG Will Only Grow

HVAC plays a major role in the environmental aspect, but what about the other goals? The past couple of years show how HVAC helps in those areas. One way is by keeping workers safe through improved IAQ. Millstein said companies need to be smart about IAQ. Opening up a system to take in more outside air requires more energy use, as does increased filtration.

Goel said there are a range of solutions that can improve IAQ without costing the progress made in energy conservation. Helping customers meet both these goals requires education and is an example of how these partnerships work.

A big part of the social component is how employers treat their workers, and HVAC is key here as well. It factors into all sorts of areas of growth, from providing more comfort in warehouses that process e-commerce orders to ventilating the kitchens cooking up food delivery orders.

ESG will only continue to grow as a major driver for the HVAC industry. Billy Grayson, executive vice president of initiatives at the Urban Land Institute, said more and more entities are taking ESG into consideration. What was once a concern for large corporations is now a focus for smaller companies trying to attract investors and employees. Other areas where it plays a role range from tenants selecting office space to rent to local governments writing building codes.

Goel said even entire countries are starting to look at ESG goals. And international companies more and more seek to operate the same way across the globe.

“That is changing and accelerating the shape of how companies broach ESG,” Goel said.

This bodes well for all aspects of the HVAC industry as they create solutions for their customers. These solutions may include building new energy-efficient equipment that runs on a refrigerant with lower GWP. Or it may mean using building controls to improve the performance of existing equipment. Either way, the industry is there to work with its customers to meet those goals.

“Profitably decarbonizing a company is now easy,” Millstein said. “And HVAC is the beating heart of that.”