13 Jan Action over words necessary to combat climate change
Kim Fausin, CEO, Danfoss, outlines the company’s main goal to decarbonize infrastructure and transportation across the globe and what nations need to do to make a green future a reality.
What are Danfoss’ main goals and how is the company going about making them a reality?
Danfoss is engineering the future by offering technology needed to decarbonize the globe. We are the leading provider for energy efficiency in buildings, infrastructure, supermarkets, data centers and similar structures. At the same time, we are enabling electrification worldwide with a diverse range of technological solutions to electrify cars, ships and off-road machinery. This is the core of our business. We are extremely focused. We have three large businesses with 12 divisions and 34 business units all with the goal to decarbonize the planet with energy efficient technology. We are around 40,000 people at Danfoss. Our three largest markets are the U.S., China, and Germany, in that order. We have approximately a third of our business in the Americas, a third in Europe, and a third in Asia-Pacific. We are an international company with a significant global presence. We are very present and—despite our more than 88 years in operation—we have never been as relevant with our technology as we are today.
We are following a strategy set up in 2018 to build a strong and healthy foundation. We are taking advantage of megatrends to focus investments on combating climate change, more efficient food production, reducing food waste, digitalization and electrification. This has played out with the acquisition of Eaton Hydraulics, which made us the largest global player in mobile and industrial hydraulics. We created a climate solution segment. We also created a drives and electrification segment that replaces combustion technology with electrical technology. We have been investing a significant amount of money to use innovative technology to lower energy consumption of infrastructure. Our expenditure is around five percent of our sales, which puts us in the high end in terms of our main competitors.
There are few construction and building projects where Danfoss is not involved in providing core technology for green and sustainable construction. Heating and cooling buildings currently takes up around 40 percent of all energy consumed in cities. For example, we are helping in many data centers that are now being built. We harvest all excess energy and put it back into the energy grid. We worked on a data center in Odense, Denmark, for Facebook. The facility now heats more than 10,000 houses in its proximity. We are also working heavily on automotive electrification projects with original equipment manufacturers. We are also involved in projects to electrify ferries, trucks and buses. Danfoss is in the midst of an extremely transformational time. We are a good indicator of the success of the Nordic region and Denmark.
What kind of impact can improving infrastructure and transportation have on lowering our carbon footprint?
We have been fighting hard to promote energy efficiency. According to the International Energy Agency more than 40 percent of required carbon emission reductions can be attributed to energy efficiency. However, this area has not yet had the focus it deserves. If Danfoss’s 2.69 million-square-feet headquarters in Nordborg, Denmark, can be carbon neutral in 2022, our goals are feasible. Energy efficiency is a positive investment, with no longer than three-year payback periods compared to capital-intensive projects associated with renewable energy. We are trying to call everyone to action. The technology is there. We can vouch for it in Danfoss, and we have proven it repeatedly.
There are two pillars for energy efficiency: using the energy already there from data centers, supermarkets or industrial processes, for example, and replacing combustion technology with electrification through renewables and electrical systems. There are splendid examples of short-distance ferries that go between two parts of countries. There are thousands of them in Scandinavia, Hong Kong and Singapore. Electrifying these vehicles is quite straightforward and requires only small short-term investments. In the mobility sector, the same is happening with smaller tractors and machinery.
How can Denmark act as an example to the world in combating climate change?
Challenges in Denmark are the same as around the world, with the most profound being climate transition and decarbonization. The Nordics have always built strong public-private climate partnerships. We have partnerships within manufacturing and production companies and we partner in the digital space. These collaborations have helped us align ourselves with our ambitious target of being 70 percent carbon emission free by 2030. Denmark and the Nordic countries have a long tradition of pulling off bold objectives through these public-private partnerships. The Nordic region has a lot to contribute; sustainability has been in our DNA for many years. We have a good start and already have a lot of technology and solutions in the sustainability sphere. The International Energy Agency has decided to have their energy efficiency conference in Denmark in 2022, which is very exciting. It is the most esteemed energy efficiency conference worldwide and will take place in Sønderborg where Danfoss has its headquarters.
How important are government policies in pushing forward the green transition?
There is enormous potential to save energy within the building and infrastructure market. With a few simple steps, air conditioning systems can consume 30 to 50 percent less energy while achieving the same output. The way one cools and heats buildings can be easily leveraged to reduce energy consumption. What is required are clear regulations for new buildings and clear targets in renovating older structures. If these parameters are in place, it is a good business in terms of returns. We also see many examples of geared policies in electrification to support the transition of the entire automotive sector from combustion technology to an electrical industry. This is an ongoing process that will take time, but it is happening.
What main areas are Danfoss’ research and development efforts focused on?
We work extensively on technologies that make buildings more intelligent. For example, we can install a controller in a multi-family house that uses artificial intelligence to take data from the weather forecast to know the conditions for the next coming six hours. It can set the building up according to whether it is going to be colder or warmer. Heating a building quickly consumes a lot of energy and is very expensive. If you can prepare five or six hours ahead, you save about 15 to 20 percent of the energy consumed. There are many basic technologies that cut energy consumption. We also concentrate on the electrification of vehicles. We can reduce fuel consumption of the heaviest vehicles by around 20,000-25,000 liters of diesel per year by only applying a slightly different pump technology. There is a lot of innovative technology coming out right now in the automotive sector that we are bringing out in other segments. We have a huge wave of new technology pouring in on a year-to-year basis. However, even if we were not to develop any new products, we already have the technology required to reach the Paris Agreement targets on energy efficiency. We just need to implement them. We will not stop developing and innovating, but what we really need is to gain more traction.
How does the company go about attracting talent for its diverse projects?
We are involved across the globe with leading universities. Our most important source of delivering on our promises is talent. From Massachusetts Institute of Technology in the U.S. to the best universities in Europe, Asia and India, we have an extremely close network of relationships. We pose projects, interact and give them the chance to come to Danfoss. Our best attractor is our climate change agenda. If one is serious about combating climate change, we will not just talk about it, we work on it on a full-time basis. Companies like Danfoss are where the green transition starts. Danfoss’ focus on branding and profiling is unique. Many companies today feel pressured when it comes to purpose or ownership. We are fortunate that the purpose of our company is so strong. We have solutions to many large issues that matter. When we go to work Monday mornings at Danfoss, what excites us is making a difference. This characterizes how we work around branding and attracting talent.
How significant is the U.S. market for Danfoss and how does it compare to other markets in the company’s portfolio?
Challenges in the U.S. are the same as everywhere in terms of the green agenda or updating infrastructure. We play a vital role. We believe in what we are doing, which is why we have invested so heavily in the North American market. Having strong manufacturing and engineering footprints in the Americas supports our customers in the market. The acquisition of Eaton Hydraulics was very strategic for us. It doubled our hydraulics business and brought us into a leading position globally. It also gave us a leading position in the U.S. This was a huge motivator in us combining our business, customers, partners and distributors. It was a game changer in how we serve this market. Today, our position in the U.S. is significant because many of our largest global customers are based there. We have a fantastic balance between European, American and Asian Pacific markets. We are growing very fast, and not only through acquisitions. We have seen strong organic growth in the Americas this year and have a strong outlook in all the markets in which we have a presence.
How has the company restructured its current strategy to further push current trends, improve the lives of your workers and accelerate growth?
We have just concluded our sustainability and environmental, social and governance strategy for the future. It is significantly more ambitious than our previous strategy and much more in line with decarbonization. We have a clear 2030 target to decarbonize the company and aim to help our customers and partners make this a priority. The latter is more important than reducing our own limited carbon footprint. In addition to carbon emissions, we are also pushing harder on inclusion in our operations; we believe diversity is crucial. We need to understand how to be successful in this on a global scale. We have a culture, foundation and team at Danfoss that allows anyone despite their gender, culture, background or beliefs to develop their potential. This is unique and will be a large competitive advantage for us in the next five to 10 years.
Trends are currently very strong and this is expected to continue for many years to come. We are therefore in a comfortable investment situation. Danfoss can be the world leader in the green transition. We are fortunate as an iconic technology provider to have owners that think in the mid and long terms and agree with us in our leadership. They know that investment is necessary to acquire and develop the right technologies. We are demonstrating this through adding a third to the size of the company in 2021. We will continue to strengthen our three core businesses with mergers and acquisitions. We will continue to drive organic growth through our investment in innovation, research and development and developing the markets around us.
It is good to talk about the green transition, but it is more important to act. We encourage everyone to go for it. One lesson the pandemic has taught us is that if we really want something and work together, we can make a lot of significant things happen in a very short period of time.