Profit from ESG? Turkish company shows how it’s done
But one of them stood out not only for the distinctiveness of its name but also for its dual origin. Arcelik was the only company in the appliance sector and one of the few in the emerging world.
This dual provenance is extremely important as emerging markets and home appliances must be at the heart of the green agenda for it to succeed. Thanks to the combination of rapid economic growth (particularly in Asia) and rapid population growth (particularly in sub-Saharan Africa), the emerging world is destined to be both the first generator and the first victim of global warming. climatic. The problem is already serious. The air in cities like Beijing and New Delhi is often dangerous. Half of Pakistan is currently under water. Several Arab countries like Qatar are intolerably hot for much of the year. All of this will get worse as economic growth pours pollution into the atmosphere and turns millions into refugees.
The appliance industry does not attract as much attention as the automotive industry. But it is one of the main causes of pollution. Around 40% of the world’s electricity consumption can be attributed to appliances, lighting and industrial motors in homes and businesses: every time you turn on your dishwasher or turn on your washing machine , you create a demand for electricity which, in the emerging world, will often be supplied by coal-fired power plants. Air conditioners will play a particularly important role in driving demand for electricity through a combination of rising wealth and rising temperatures: the industry predicts that the current 3.6 billion air conditioners will grow to 14 billion by 2050.
Arcelik is the Turkish leader in home appliances with a workforce of 45,000 people and 12 household brands, including Grundig and Beko, under its umbrella. It is also a proud green champion that has been the No. 1 appliance company in the Dow Jones Sustainability Index for three consecutive years (2019-2021). The company is reorganizing its factories to be carbon neutral. It has built two giant recycling plants in Turkey for electrical equipment which have so far processed more than 1.6 million devices and is also making all of its packaging recyclable, replacing polystyrene foam with recycled paper.
Now it is focusing on something more challenging: making its products environmentally neutral throughout their life cycle (90% of emissions come from products after they leave the factory). The company recently invented a filter to capture microfibers that come loose during the washing process. At this year’s giant home appliance show in Berlin this month, Arcelik presented several innovative new products: a combination washing machine and dryer that stores water from the dryer and uses it for the cycle next wash; a dishwasher that uses clean water left over from one wash cycle for the next; and a biodegradable refrigerator designed to disappear when buried in the garden. Arcelik’s goal is to reduce its total carbon footprint by 50% by the end of the decade.
Why does Arcelik put so much emphasis on the environment? It is widely accepted that the environment is a luxury of the rich world and that businesses in the emerging world can thrive better by focusing on price and ignoring the environment, just as businesses in the rich world did in the 19th century when they filled the skies over Manchester and Pittsburgh. with smoke. And yet here we have a Turkish company in a very price-competitive industry that is choosing a different path. Arcelik’s green shift has in no way harmed its investors’ returns or its growth prospects. The company’s share price has more than doubled in the past year, despite an inflation rate in Turkey that recently hit 80%. It continues to add new businesses to its portfolio: after buying Defy in South Africa in 2011 and Dawlance in Pakistan in 2019, it more recently bought Singer in Bangladesh and 60% of Hitachi’s appliance business outside from Japan.
The first reason for Arcelik’s green pivot is industrial evolution. Although companies in emerging markets begin by competing on price, they soon learn that they must offer more to retain customers. There is always someone out there who will pay lower wages and save more money. And they are starting to think of ways to build customer loyalty by producing more attractive or innovative products. Arcelik, for example, employs 2,200 researchers in 28 R&D centers. And they’re starting to question the idea that there’s a simple trade-off between price and the environment: making things more energy-efficient can often make them cheaper and more robust, especially in countries like the United States. South Africa and Pakistan which have very unstable energy supplies. electricity.
The second reason is that consumers in emerging markets have become increasingly sensitive to environmental degradation, not only because emerging markets produce a large middle class whose members can afford the luxuries, but also because that this degradation becomes more costly for everyone. Turkey, like Greece and Italy, has experienced a succession of forest fires in recent years that have forced tourist resorts to close. Istanbul’s population has swelled from 3 million 40 years ago to 15.5 million today, with the influx of refugees from war-torn Syria foreshadowing a tidal wave of climate change refugees to the ‘coming. A 2017 scientific paper claims that Istanbul’s average annual temperature increased by 0.94 degrees Celsius (1.7 degrees Fahrenheit) between 1912 and 2016.
The third reason for the change is the company’s powerful CEO, Hakan Bulgurlu. Bulgurlu is far more cosmopolitan than most previous generations of Turkish CEOs: he spent the first five years of his life in Norway, where his parents were earning their doctorates, earned his BA and MBA in the United States, and lived in Hong Kong for 13 years. But he is more than a Western CEO with a Turkish passport. Arcelik has gone global with the emerging world in mind: the company sells its products in 150 countries and has sales and marketing offices in 40, but all of its production, with 30 factories in nine countries, takes place in the emerging world, in especially in the former Silk Road countries.
Bulgurlu says the most interesting thing that has happened in emerging markets in recent years is that CEOs have lost their automatic deference to Western role models. They no longer believe that Westerners are the only ones who can solve global problems, largely because they have done so much to solve their own problems. He is dismissive of the European economy and the American political system, although he acknowledges American genius for innovation. He does not complain about the factories his company owns in Russia and China.
Bulgurlu is vocal about its commitment to the environment. He talks about his moment of conversion six years ago when he visited the beach in Thailand where Leonardo DiCaprio’s film ‘The Beach’ was filmed and found himself standing in a pile of plastics and other trash, teeming insects and maggots. He prides himself on making his company’s filtering technology “open source” and available to competitors. In 2019, he climbed Mount Everest to draw attention to the melting Himalayan sea ice.
It’s easy to smell vanity in all this. Bulgurlu seems to enjoy blowing his own trumpet. He wrote a book about his Everest experience, ‘A Mountain to Climb’, and gave a speech on climate change at the Berlin Expo with a picture of him dating Prince Charles, and well others during his trip to Everest. He seems determined to become the emerging markets equivalent of a new Western phenomenon exemplified by Paul Polman, the former CEO of Unilever, or Marc Benioff, the founder and CEO of salesforce.com: a famous activist CEO also famous for good causes that it champions the products it makes.
But self-advertising can be a good thing if it’s tied to real results for a good cause. Far from joining every woke crusade, Bulgurlu is laser-focused on the very real problem of global warming. And far from committing to an empty virtue signal, it invests heavily in innovation of the kind that cuts costs while improving results. The Everest conqueror says the most important thing he can do in his career is change public perception of what is possible in the emerging world: demonstrate that companies like his can thrive on the scene world while adopting the highest environmental standards. . Perhaps the biggest environmental revolution in recent years has been to demonstrate that businesses in general can be the source of solutions to the climate problem rather than just a source of emissions. By mastering the art of green innovation while delivering decent results to its shareholders, the Turkish washing machine and dishwasher giant is extending this revolution to the emerging world.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Adrian Wooldridge is a global economics columnist for Bloomberg Opinion. A former writer at The Economist, he is the author, most recently, of “The Aristocracy of Talent: How Meritocracy Made the Modern World”.
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