First Person: ESG Propels Honeywell in New Directions
Policies with regard to environmental, social, and governance issues have become increasingly important to all companies, as well as their shareholders, in the 21st century’s “sustainability revolution.”
van Hook: Having been in this area for so long, it is useful to distinguish between all corporations and corporations that specifically innovate in the sustainable area.
ESG platform performance and transparency has become a critical part of doing business for all corporations. I think that for many reasons: first, the organic importance of the issues, particularly climate change and inclusion and diversity, but also all the mechanisms of transparency. Communication is so broad. Companies operate in a much more transparent world now. Everything is on view, and everything is known in a way it wasn’t before. Now there is a significant expectation for all corporations to perform well in ESG and to talk about transparency.
But then when you focus on the subset of companies that innovate in ESG, you have another intuitive basis for why this is so important. That goes to customer demand. For example, if we are innovating in ways to help customers reduce their greenhouse emissions, then that becomes a key factor in their demand for our products and how we are performing internally.
Shareholders also are looking at your business plans. They want to see that you are really investing in better products in this area. For that subset of companies, I think things have really come full circle. It is the internal performance that directly feeds into the products, and, for us, the products then feed into the internal performance because we try to use Honeywell products wherever we can to reduce our own emissions.
AD: What are Honeywell’s top priorities for implementing ESG issues/policies?
van Hook: Unique to Honeywell, we build on an actual history in this area, as well as experience and systems that have been put together. Most companies today are in the exploratory phase. We have been doing this for nearly 20 years. For over the last 10 years, all of our greenhouse numbers have been third-party verified. The fundamental program is in good shape.
There is a significant expectation for all corporations to perform well in ESG and to talk about transparency. Our priorities now are aligned with the Paris Agreement. We’ve done this by committing to carbon neutrality in our own facilities and operations. We also have committed to establishing a target that extends to our Scope 3 initiation with a science-based target initiative. We think we are among the largest of industrial companies to do this.
Other areas of environmental and social include worker safety. We have always felt strongly that worker safety is an important part of ESG. The United Nations Sustainable Development Group recognizes it as a critical component of sustainable development. We, in addition to being one of the largest manufacturers of worker safety equipment of all kinds, also maintain a safety record that is well over four times that of the industries in which we operate.
AD: How do these build on Honeywell’s previous efforts in these areas?
van Hook: What is unique about Honeywell is we started our program at the same time when the company was launching a comprehensive lean-based approach to manufacturing. This gave us the opportunity to build sustainability directly into lean. It has become a common language for the company.
I like to compare this to the quality revolution of the 20th century, where an aspiration was imported into large-scale manufacturing. My sense is one must do the same thing with the sustainability revolution in the 21st century. We started that journey in 2004. It created a strong infrastructure. If we didn’t’ have that infrastructure, I would not feel as confident going forward. We improved our greenhouse intensity more than 90 percent through that process. For a large industrial, that is a lot. Now I feel that we can use this system to drive our achievements further in the future.
We have always felt strongly that worker safety is an important part of ESG. AD: How does a more racially and ethnically diverse workforce help?
van Hook: One thing important to note is, we have hired a diversity inclusion officer. But more than what she is doing, just the fact of including that officer within the company’s leadership is very important. Workplace respect and respect for inclusion and diversity are two of those core principles. If you don’t have these, you don’t work here. That is how the company thinks. Our CEO chairs several of our I and D committees. Our general council is an active member.
All those things that people talk about regarding I & D are so true. There are many reasons to encourage it. If you do not have a diverse workforce, you miss out on many different points of view and miss out on understanding many markets.
AD: How does Honeywell see its ESG priorities setting itself apart from its competition?
van Hook: The system we have developed that incorporates ESG directly into lean differentiates us from most of our peers. Since ours emerged out of operations — as opposed to externally set initiatives — that sets us apart. Also setting us apart is our level of commitment to innovation in this area.
AD: Why is ESG important for Honeywell’s growth?
van Hook: About 60 percent of our R&D goes to ESG-related outcomes. And about 60 percent of our revenues also derive from ESG-related products. That is how hard core we are driving these products.
ESG data is increasingly being reported like financial data. Since we are an engineering company, we drive products that are big heavy-hitters like our low global warming potential refrigerant and propellant. This is a new molecule, an HFO. We calculate that it has already avoided more than 260 million metric tons of CO2 from the atmosphere.
AD: What are the challenges to meeting ESG goals?
van Hook: Governance is going to be very important. This is a lot of data. This data must be absolutely accurate because ESG data is increasingly being reported like financial data. We not only see this as an important goal, but we are also innovating in that area as well. We do so many building systems and so much in the cloud with HCE that we see that system of record and transparency component of ESG as being an important innovation area. That helps us build on products. It’s critical that this data be accurate, credible, auditable, and can be reported to the government.
AD: Do you have any concluding remarks?
van Hook: This is an exciting time with the company’s internal efforts starting to merge with the green economy. It’s a new revolution.
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