Keeping your cool about global warming

The huge amount of power consumed by air conditioners means it is a major target for climate change efforts.



Global Climate Change Team

Heating, ventilation & air conditioning (HVAC)

Climate change has already had a very strong impact on HVAC equipment demand. As global temperatures rise, higher energy efficiency standards and rising emerging market demand have driven 5-6% market growth annually.

We expect these drivers to remain intact, and that air conditioning equipment demand will grow by 6% to the end of the decade. We expect growth to be higher for more energy efficient and less polluting equipment, such as “ductless” air conditioners.

Ductless to take share

Ductless systems typically supply air conditioning to a single or a few rooms. “Multi-zone” systems are a common application of ductless systems and allow up to 8 rooms (zones) to be conditioned from a single outdoor unit.

We believe that ductless air conditioners, which control temperatures in each room, keep running costs low, save energy, and will grow more strongly than ducted air conditioners. Despite higher initial costs, we see plenty of room for this type of system to grow.

Energy efficiency standards are tightening


Although standards vary from region to region, energy efficiency is gradually being tightened as the focus on energy conservation narrows. We expect a global standard will emerge as countries coordinate on climate change. However, Japan has been at the forefront of energy efficiency since 1991, when it introduced the Resource Promotion Act.

In the mid-2000s, a staggering 25% of Japanese household electricity consumption came from air conditioners, driving a stronger focus on efficiency than other markets. The main efforts rest on reducing power consumption – mainly of the compressor units – and reducing waste by making heat exchangers more efficient. Inverter technology is currently the best way to improve the power consumption of air conditioning units, and the Japanese are the industry leaders in this regard.

Next generation of refrigerants is coming

After the 1990s phase-out of CFCs on ozone layer depletion evidence, the industry shifted to using hydrofluorocarbons (HFCs). However, while not depleting ozone, HFCs have since been found to have high levels of greenhouse gases. Last October, a new deal was made to phase out HFCs over the next decade. The next generation of refrigerants will focus on hydrofluoro-olefins (HFOs) which have much lower greenhouse gas emissions.

The upcoming change in refrigerant regulations should raise investment requirements in the industry, change the competitive environment and make the industry much more consolidated, all of which is good for investors. Companies with stronger distribution muscle, strong service teams, and better brands and technologies should capitalise on these trends best.

Important information

This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.


Global Climate Change Team