Robotics and wider trends around automation are rarely out of the news at the moment with everyone from Mark Carney to McKinsey opining on the likely positive or negative impacts[i]. There are a myriad of views on the potential disruption caused by robotics and automation, but what is the case that the technology fits within a sustainable investment portfolio?
Industrial energy use is becoming a problem
To answer this question we first have to understand the scale of industrial use of energy. According to the International Energy Agency, industry accounted for 24% of total direct CO2 emissions in 2013 representing the second largest source of emissions behind power generation and just ahead of transport. Moreover, over the next thirty years, industry is forecast to grow significantly as a proportion of total direct CO2 emissions, reaching 45% of total emissions by 2050 (see figure 1)[ii].
Figure 1: Direct CO2 emission sector breakdown (2˚C Scenario)
This growth is a consequence of the progressive decarbonisation of the power sector and growing penetration of low carbon technologies in transport. This finding was underlined in recent work by Carbon Tracker and the Grantham Institute which found that annual CO2 emissions from industry would peak between 2050 and 2080 on a range of scenarios and would account for between 10-14 GtCO2 per year[iii]. Clearly industry-related emissions need to be a priority for policy-makers and innovators. In fact the IPCC believe that the industrial sector will need to provide 23% of the total cumulative GHG emission reductions needed to ensure no more than 2˚C of global warming[iv].
Large industrial facilities in the US and elsewhere often have their own power generation capacity, and a growing proportion are sourcing renewable power through Power Purchase Agreements (PPAs)[v]. Energy efficiency is the second key strategy to reduce the carbon intensity of industrial activity. The IEA believe that 30% of the required reductions will need to come from more efficient process technologies[vi]. This includes areas such as:
- Enhancing process controls through accurate monitoring of pressure, temperature, flow rates and other variables in real time;
- Replacing legacy equipment with high efficiency motors and variable speed drives. Variable speed drives for example can reduce energy consumption by up to 70%[vii];
- Using more efficient LED lighting combined with building controls can realise energy savings of 30% or more[viii].
The FP WHEB Sustainability Fund is well represented in these areas with businesses like IPG Photonics who manufacture fibre lasers that are 70% more efficient than traditional technologies and Roper Technologies who makes industrial control systems as well as pumps and valves that maximise efficiency by monitoring temperature and pressure and reducing defects.
The factory of the future
Without aggressively deploying efficiency technologies, industry’s carbon emissions will become the main contributor to climate change. However, important as these technologies are, we believe a more radical shift is already happening with more profound implications. This is driven by the confluence of developments such as:
- The increased capabilities and rapid price declines in key technologies such as big data processing which has seen price declines of nearly 60 times in the past ten years[ix];
- Increasing labour costs in emerging markets that are eroding the ‘low-cost location’ competitive edge. China for example has seen mid-teens wage growth compared to 1-3% in developed markets over recent years;
- At the same time, ageing populations are leading to a shortage of specialised labour. McKinsey expects a shortage of highly skilled workers (engineers, technicians) in both emerging and developed markets by 2030[x];
- Customers are looking for increased speed of delivery and increased customisation of products. For example, the F150 Ford pick-up is available in a staggering 653 trillion varieties[xi].
At the same time, the age of legacy equipment is increasing. For example in the US, the average age of manufacturing assets has gone from a low of 6.5yrs in 1947 to just under nine years in 2014[xii]. These underlying trends have now received a further fillip from President Trump’s ambition to ‘reflate’ the US economy.
Together these trends are accelerating the development and deployment of intelligent, connected factories. These factories are highly automated and enable much greater levels of flexibility and product customisation. They also help to lower working capital requirements, provide quicker time to market, and generate less wastage through the use of 3D printing[xiii] and through reduced production errors and breakage.
An integral benefit of these new connected factories is the inherent improvements in carbon and material efficiency. These benefits are derived from lower wastage and more intelligent use of resources. For example, Flextronics reported savings of over $1m per factory through reduced energy use by ensuring that machine-level energy consumption was linked to a demand response market and real-time pricing information. In a World Economic Forum Survey, improving the sustainability of operations was among the top five reasons for the deployment of the ‘industrial internet’[xiv].
And beyond the factory gates
Digitisation across the whole product life-cycle from manufacturing to end of use also enables on-going management and monitoring of assets during use. Efficiencies can be realised through better planning and logistics. For example, airlines have been able to optimize flight paths saving 77 gallons of jet fuel and 740kg of CO2 emissions per flight[xv]. Embedded sensors can also enable companies to conduct predictive maintenance while the product is being used. This is able to generate savings for logistics and passenger transport businesses of between 5-10% in avoided fuel expenses – and the consequent carbon emissions. GE estimate that their Trip Optimiser for the railroad industry has the potential to save 25m gallons of fuel annually, for example[xvi].
The FP WHEB Sustainability Fund aims to benefit from the deployment of these future factory technologies. Dassault Systèmes, for example, is a leader in software tools for product design and life-cycle management (PLM). The UK company Renishaw sells metrology and 3D printers used in smart manufacturing applications and Rockwell Automation’s software and control products are central to what they call the ‘Connected Enterprise’.
Managing social impacts
In addition to the environmental and resource benefits of greater factory automation, we believe that these technological developments can drive productivity improvements and wealth creation across the economy as a whole. Automation, or perhaps more accurately mechanisation, has after all, been a staple of economic development for the past two centuries. According to a study of census results in England and Wales since 1871, technology has created more jobs than it has destroyed over this period[xvii]. This is a view that we share. It is surely impossible that technology has not created more jobs since 1871 otherwise unemployment would be of a different order of magnitude today. It is also not a co-incidence that economies with high levels of automation tend also to have high levels of employment. However, the positive impact at a macro level does not address the personal tragedy for the individuals and communities that find that their own skills have been made redundant. We think that these impacts can be successfully navigated. Education and training will undoubtedly play a role, but more innovative and far-reaching approaches will also likely be needed such as new ownership structures that give workers and former workers a direct stake in this new industrial infrastructure.
The next stage in decarbonisation
Industry and manufacturing have so far been slow to develop compelling responses to the challenge of carbon emission reductions. As a recent report on the subject concluded, ‘industry will need to play a much bigger role in cutting emissions than solely relying on the indirect gains from the decarbonisation of the power sector’[xviii]. With the rapid technological progress and cost reductions in factory automation, robotics and the internet of things, industry can now look forward to playing this fuller role.
[i] ‘The Spectre of Monetarism’, speech given by Mark Carney, Governor of the Bank of England, 5 December 2016 and https://www.nytimes.com/2017/01/12/technology/robots-will-take-jobs-but-not-as-fast-as-some-fear-new-report-says.html?_r=0
[ii] International Energy Agency quoted in ‘Scouting 2˚C opportunities’, KeplerCheuvreux, 25 November 2016
[iii] ‘Expect the Unexpected – The Disruptive Power of Low-carbon Technology’, Carbon Tracker/Grantham Institute, February 2017
[iv] IPCC quoted in ‘Scouting 2˚C opportunities’, KeplerCheuvreux, 25 November 2016
[v] The RE100 initiative for example includes companies such as Apple, BMW, Coca-Cola, Diageo Procter & Gamble and Mars who have committed to sourcing 100% of their power from renewable resources.
[vi] IEA quoted in ‘Scouting 2˚C opportunities’, KeplerCheuvreux, 25 November 2016
[vii] ‘Top 10 energy saving options’, Siemens, 2011
[ix] Profiles in Innovation: Factor of the Future’, Goldman Sachs, April 2016
[xi] There are 17 different equipment options (for example seat configuration, trim options, colours, radios, window settings, cargo space etc.) and typically 6-7 alternatives in each option.
[xii] US Bureau of Economic Analysis
[xiii] 3D printing reduces environmental impacts by reducing wastes generated from traditional manufacturing processes, can enable the use of novel lighter weight materials with downstream efficiency benefits and radically reduce the need for complex logistics and supply-chains with all their attendant environmental impacts. Some studies have suggested that 3D printers could saves as much as US$593bn and 9.3 exajoules of energy by 2025. https://www.environmentalleader.com/2015/11/is-3d-printing-the-future-of-sustainable-manufacturing/
[xiv] Industrial Internet of Things: Unleashing the Potential of Connected Products and Services, World Economic Forum/Accenture, 2015
[xvi] WHEB research
[xviii] Op cit 2.