Green Power Era: Is ESG a Stronger Endorsement?

From Bonus Points to Mandatory Questions

Policy drives the arrival of the green energy era. In 2020, China announced its "dual carbon" goals: reaching the peak of carbon emissions before 2030 and achieving carbon neutrality by 2060. Achieving carbon neutrality is a common challenge faced by all Chinese enterprises. The household appliance industry began to gradually recover in March 2020 after experiencing the impact of the pandemic. According to People's Daily, although the retail sales of the household appliance industry in the first half of 2020 decreased by 14.13% year-on-year to 369 billion yuan, retail sales in the second quarter of 2020 reached 248.6 billion yuan, a year-on-year increase of 2.64%, doubling that of the first quarter. China's vast household appliance consumer market further promotes the advent of the green energy era.

ESG (Environmental, Social, and Governance) is a compulsory course for enterprises going global. According to the data from the "2022 China Household Appliance Industry Third Quarter Report," the domestic household appliance market still faces significant pressure in the third quarter of 2022, with cumulative sales reaching 161.55 billion yuan, a 4.2% decrease compared to the same period last year. Meanwhile, according to customs data, from January to September 2022, the cumulative export volume of household appliances was 258.652 million units, a 10.1% year-on-year decline, with a cumulative export value of 432.67 billion yuan, down 9.2% year-on-year. In the face of significant domestic market pressure, going global is an important avenue for companies to expand their increments.

From the consumer's perspective, an increasing number of consumers are willing to "pay the bill" for environmental protection. According to research, 72% of residents in China express a willingness to purchase products from companies that support and prioritize environmental protection, significantly higher than the global average of 54%. This indicates that consumers have high expectations for companies to contribute to societal values, making "branding for good" an imperative path for all home appliance enterprises. Under the combined influence of various factors, the corporate attitude towards ESG has shifted from being a "bonus question" in the past to becoming a "mandatory question" today.

Persisting in Low-Carbon Leadership and Innovating Technologies to Stimulate Internal Corporate Energy

Technological innovation is the driving force behind entering the green energy era, with Chinese home appliance companies initiating technological advancements. Representing the A-rated enterprises, Gree focuses on environmental governance and carbon emission reduction. Gree has developed corresponding facilities for environmental treatment, such as paint exhaust gas control systems, dual dryer exhaust gas control systems, and spray exhaust gas control systems, ensuring compliant emissions. By establishing a management mechanism for environmental protection facilities, Gree strengthens the operational management of these facilities to ensure efficient operation. It has also implemented an energy management system and carried out various technology and management improvement projects.

Hisense emphasizes the utilization of renewable energy. Leveraging the opportunity provided by the "Photovoltaic Storage Direct Flexible" initiative, Hisense has created a photovoltaic storage direct flexible inverter central air conditioning system, transforming air conditioning from a power-consuming device into a distributed energy system hub. This increases the utilization of photovoltaics while ensuring the stable operation of air conditioning, addressing issues of high power consumption and carbon emissions associated with traditional air conditioning, thereby achieving technological innovation in the field. Midea, on the other hand, places significant emphasis on innovative research and technology development, with 35 research centers established in 12 countries globally, boasting over 20,000 research personnel. Through its "2+4+N" global research and development network, Midea has established a global advantage in research and development. By the end of 2022, Midea had been granted over 4,000 invention patents globally, with a cumulative patent maintenance quantity exceeding 80,000.

Haier Smart Home has made numerous breakthroughs in technological innovation and energy conservation, among other areas. One notable achievement is the introduction of the "carbon-neutral" green factory, which effectively reduces carbon emissions through green design elements such as recycled building materials, thermal insulation composite panels, pre-treatment solid heat recovery, and water circulation reuse. Kangjia has overcome critical "bottleneck" technologies. In 2022, Kangjia made significant breakthroughs in key areas such as semiconductor optoelectronics and storage, accelerating the transformation and upgrade from "Made in China" to "Smart Manufacturing in China."

Reconstructing the Digitalized Home Appliance Industry Chain

With the rapid development of technology and the continuous upgrading of consumer demands, the importance of the digitalized home appliance industry chain is increasingly evident. Restructuring the digitalized home appliance industry chain not only enhances the user experience of home appliance products and improves production efficiency but also creates greater value for society as a whole.

Haier Smart Home has launched China's first large-scale data platform for the recycling industry of home appliances, coupled with the simultaneous construction of the first interconnected factory in China's home appliance recycling industry. This includes the establishment of a national model disassembly factory and the world's first "lighthouse factory" for disassembly. Similarly, Gree is focusing on digitalization in the distribution sector by upgrading its ERP system under a single logistics and multiple financial architectures in the air conditioning industry. This involves upgrading the supply chain and restructuring information projects to achieve visual monitoring of the supply chain and comprehensive performance analysis.

Midea's digitalization is not only evident in the manufacturing sector but also in marketing. In the manufacturing sector, Midea's refrigeration continuously ascends through digital transformation from machine replacement to industrial internet. By relying on the independently developed Midea Engine Industrial Internet platform, Midea achieves networked production equipment, visualized production data, transparent production processes, and unmanned production sites, achieving vertical, horizontal, end-to-end integration. In the marketing sector, Midea establishes the Midea Cloud Sales Center, creating a centralized platform that integrates commercial flow, logistics, and service flow. Through retail empowerment, direct customer reach, and data-driven strategies, Midea resolves issues such as the lack of transparency in traditional sales models and high business barriers, resulting in a 30% or more increase in the entire value chain.

Hisense, based on the requirements of its global layout, has established a localized supply chain system through a series of mergers and acquisitions, creating a supply chain management system. This system operates in a closed-loop manner covering "procurement-warehousing-processing-sales-inventory-finance analysis," breaking information silos, reconstructing digitalized supply chains, and establishing the supply capabilities of major regions globally, enhancing the flexibility and resilience of the entire supply chain. In recent years, manufacturing efficiency has increased by more than 120%, with labor cost savings exceeding 1.4 billion yuan. In terms of warehouse management, Hisense has chosen to build a WMS warehouse management system, achieving shared inventory across multiple warehouses and owners. It distinguishes inventory rights based on warehouse type (RDC, self-operated warehouse, three-package warehouse), receives instructions from the upstream OMS system, and automatically allocates warehouses and inventory according to preset rules.

Recycling and Circular Integration Throughout the Product Lifecycle

With the continuous evolution of technology, the handling of obsolete household appliances has become a significant societal challenge. In 2022, China's National Development and Reform Commission further released the "Guidance on Accelerating the Construction of the Recycling System for Obsolete Materials," aiming to enhance the policy framework for the recycling of obsolete materials and improve the level of resource recycling. From a policy perspective, there is also support for the recycling and circular use of household appliances, with representative companies achieving notable results in this area. Currently, household appliance enterprises are actively engaging in the recycling of obsolete household appliances, adopting a dual-mode approach of "online + offline" and implementing a series of incentive measures to encourage consumer participation in appliance recycling.

The circular development model of "green design - green manufacturing - green recycling" is dedicated to establishing a green and efficient ecosystem across the entire industry chain. By the end of 2022, Gree's recycling resources have processed over 46.7 million units (sets) of various discarded electronic products, converting them into recycled copper, iron, aluminum, and plastic totaling approximately 700,000 tons. According to estimates, Gree's resource recycling has contributed to reducing crude oil resource extraction by about 1.81 million tons, saving approximately 4.39 million cubic meters of water, and decreasing carbon emissions by around 2.25 million tons, supporting the goals of carbon peaking and carbon neutrality. In 2023, the focus of resource recycling will be on the construction of a system for the treatment of obsolete household appliances, ensuring the smooth flow of the entire chain from appliance production, consumption, recycling to processing.

Haier Smart Home is vigorously creating an industry benchmark on the recycling front. The industry's first interconnected factory for recycling, established in Qingdao Laixi, has commenced operation, achieving intelligent dismantling of refrigerators, intelligent sorting of plastics, and the production of recycled new materials according to specific requirements. Simultaneously, Haier Smart Home is actively constructing recycling channels, with existing offline stores numbering 32,000, over 100 logistics distribution centers, 1300 strategic partners, and 2624 county-level recycling networks. In 2022, Haier Smart Home recycled 6.13 million units of obsolete household appliances, completing the dismantling of 600,000 units. Midea has established a dedicated green recycling business unit and actively built a green recycling system. In 2022, Midea recycled 1.036 million units of obsolete household appliances. Moreover, Midea Group launched the "Green Power Action" nationwide tour, achieving over 400,000 registered members for green power recycling through digital advocacy. Through online channels, Midea facilitated the exchange of over 350,000 units of old appliances for new ones.

ESG Will Become a Stronger Endorsement and a Longer-Term Business

From 2023 onwards, climate-related issues have been a continuous and highly focused topic both domestically and internationally. ESG (Environmental, Social, and Governance) has also emerged as the "green business card" for the future expansion of the home appliance industry. While the implementation of ESG faces challenges, including difficulties, costs, profitability, and even effectiveness, it requires prolonged exploration and validation. However, it is certain that the underlying value of this methodology is positive, serving as an effective means to assess the sustainable development capabilities of companies in the current stage of societal development. As ESG undergoes a spiral rise, different stakeholders need to continuously explore and practice in alignment with their unique characteristics.

For businesses, the road to ESG presents formidable challenges and a long journey, yet it holds a promising future.