Honeywell International Inc. (HON) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Honeywell First Quarter 2023 Leadership Webcast. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to hand the call over to Sean Meakim, Vice President of Investor Relations. Please go ahead.

Thank you, Sheri. Good morning, everyone. Welcome to the first quarter 2023 installment of the Honeywell Leadership Webcast Series. The purpose of these webcasts is to provide our investors with the opportunity to hear from a wide range of Honeywell leaders on topics of special interest. For example, in December, last year, we hosted a roundtable discussion on a variety of key contacts with our -- a variety key topics with our senior leadership team. And in September, we hosted a discussion on technology and innovation with our Chief Commercial and Technology Officers. These webcasts are available on our Investor Relations website. today, we'll host a discussion on the many ways that Honeywell is driving decarbonization for ourselves and our customers. Joining me in the room today from Honeywell are Senior Vice President and General Counsel, Anne Madden; Senior Vice President and Chief Technology and Innovation Officer; Suresh Venkatarayalu; Chief Sustainability Officer, Evan van Hook. PMT Chief Technology Officer, Gavin Towler, is also joining us remote from the NextEra Clean Energy Conference, which is quite topical, where he'll be speaking on many of these same topics we'll cover today. In addition, we have Savita Subramanian, Head of Global ESG Research and Head of U.S. Equity and Quantitative Strategies for Bank of America; and Andrew Obin, Managing Director and Multi-Industry Senior Analyst for Bank of America. Savita and Andrew are here to lead the discussion today in part because of their deep dive report and investor field trip that Andrew hosted at our UOP facilities in Chicago back in November, highlighting not only the strength of our core business, but our fast growing sustainable technology solutions business that is helping lead the energy transition. We're excited to continue that discussion today. This webcast is available on our website at www.honeywell.com/investor. Honeywell also uses our website as a means of disclosing information, which may be of interest or material to our investors and for complying with disclosure obligations under Regulation FD. Accordingly, investors should monitor our Investor Relations website, in addition to following our press releases, SEC filings, public conference calls, webcasts and social media. Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our businesses as we see them today. Those elements can change on many factors, including changing economic and business conditions, and we ask that you interpret them in that light. We identify the principal risks and uncertainties that may affect our performance in our annual report on Form 10-K and other SEC filings. All right. That was a mouthful. Good morning, everyone. Anne, Suresh, Evan, Gavin, thank you for being here today. I'll now turn the call over to Savita and Andrew to kick off the discussion.

Great. Thanks so much. And it's great to be here. So let's start out with the general sort of strategy. A strong ESG foundation is a core element of Honeywell's investment thesis. Can you talk about what this means to you and discuss recent actions, progress in areas like safety during the pandemic, DE&I and ESG within your operations?

Thanks. I'll take that, Savita, and thank you for being here. Thank you, Andrew, for being here. It's great to have this conversation with you guys. Let me start by saying that ESG is not faddish for Honeywell. It's not new for Honeywell. It's long been part of our DNA for many, many decades. And it's really -- it's woven throughout the fabric of who we are as a company, both in our corporate and functional areas, but also throughout all of our businesses. We launched our sustainability program in earnest as a formal matter back in 2004, but we had been innovating in areas of energy efficiency long even before that. But in 2024, we took up the mantle to formally incorporate it into who we are as a company and what we do for ourselves as a responsible corporate citizen. And since that time, we've reduced our greenhouse gas emissions by over 90%. And so it's something that we've taken very, very seriously since that time. We've also driven about 70% energy efficiency in our operations since 2004. We like to compare things we do with our products, like our Solstice lock -- family of low global warming refrigerants. That family of products, we estimate is like removing 55 million cars off the road every year, so to try to make it more human for people on those metrics. We've completed about 6,300 sustainability projects since about 2010, and that equates to run rate savings of about $100 million on an annualized basis. So this is so virtuous. We're doing this because we're good corporate citizens, but it also makes us a better operator. And I think it's fair to say we're known for our world-class operations. And so why would ESG be any different? We operationalize ESG. Instead of just having it be a caboose attached to the train, it's actually operationalized throughout the whole fabric of Honeywell. We've disclosed that in -- on 2021 numbers, over 60% of our sales are ESG-oriented, and about 60% of our R&D spend are driven to ESG-oriented innovation. And so we're not just saying words. We're actually investing deeply in these outcomes. And what I love so much about Honeywell and what I'm very proud of as a Honeyweller is that our own innovations are both -- they come out of the test labs, and we use them on ourselves, but they're also coming out of the test labs and helping our customers achieve their most challenging ESG problems. So many people now have made pledges to carbon neutral, and this is such a good thing, but many don't know how to achieve it and don't know the first thing to begin to build the building blocks, to execute a plan to get, to their outcomes of their pledges. And we're really here to help them. We have all the tools and ready now technologies to help them make that good progress in their goals. And we've made a lot of strides. You asked, Savita, about really the S portion of ESG, and we've made some really important strides there as well over the last few years. We all endured the pandemic, now endemic, I guess. But during the course of the pandemic, we really accelerated innovation to produce products that would help people around the world deal with the COVID pandemic, whether it be cleaner air -- PPE, cleaner aircraft, ESG-oriented solutions, we donate a lot of both volunteer time and innovation in our communities. And a good example of that would be the vaccination clinics that we innovated and held here in our local Charlotte [indiscernible] but also our Small Business Innovation Fund, which donated money to, I think, over 75% of the funds went to minority-owned businesses here in Charlotte to try to bridge them across the challenge of the pandemic, so that they could emerge healthy on the other side with thriving local business. We established during that same period a global IND steering committee, which is cosponsored by Darius, our Chairman, myself and our CHRO, Karen Mattimore. So at the senior most officer levels of Honeywell, we are doing that every day. We implemented a formal diversity of slate requirement, which means that we require our businesses and our functions to have diverse people on their slate every time, so that you can hire people from that diverse group in the slate. And that has been really exciting to see the progress there, and our ability to attract and retain diverse talent because we're hiring diverse talent. We also appointed a Chief Diversity and Inclusion Officer, and it's so fantastic to see with the peak that having that big role put into our ability to make progress. We have stood up 9 employee networks. I'm the Chair -- the executive sponsor of the LGBTQ+ employee network, but we have some 11,000 employees now part of these employee networks and taking ally-ship at the senior-most level to the next level. In that same area we, for the first time, published our EEO1 statement, sharing our metrics on inclusion and diversity. We had, long before that, measured our traction from a diversity perspective and reported it to our Board on a regularized basis. So published our EEO1 statement, I'm happy to say when we compare ourselves to our multi-industrial peer set and our comp group peer set, we are at the top of the list compared to our peers in terms of our metrics in inclusion and diversity. And our world-class Board of Directors, 40% are women, 40% are ethnically or racially diverse. And we're really so proud of our Board of Directors and the quality of the conversation that, that diversity at the top of the house actually in genders. You can see, I can see it every day in those discussions. So that's really super exciting. But we're committed to do more, and we've made our pledge to be carbon neutral in our facilities and operations by 2035. That's our Scope 1 and Scope 2 emissions. We've also applied to the Science Based Target initiative, SBTi, to set a target for our Scope 3 emissions. And though that -- SBTi is really clogged evidently because we haven't -- we applied early in 2022, and we haven't had the conversations yet with them to be able to really set that target, but that's coming. This is all normal in the course of the dialogue with them. But -- and we've committed to improve diversity within our ranks, our management team and our Board. So I have a high degree of confidence today because of the say-do that we've demonstrated to ourselves in our interim commitments. We've either met or exceeded every single commitment we've made in ESG and on track to make or exceed the commitments we have in place today. And so I really have a high degree of confidence that we're going to be able to deliver because we have operationalized execution plans to do so. But importantly, we also have the innovation and the solutions to do so, not only for ourselves, but for our customers. And then, I guess, lastly, and I'm sorry to be so long winded, but lastly, we're super excited about the Inflation Reduction Act. As you all know, some $369 billion have been earmarked to energy and climate-oriented innovation to help solve the world's problems. And the IRA, of course, wants to reduce U.S. greenhouse gas emissions to 40% below the 2005 level by 2030. So that's an important and aggressive and ambitious goal. But the IRA really needs solutions like our carbon capture and like our sustainable aviation fuel and our clean hydrogen and energy storage and, et cetera, if we're ever going to achieve those goals. So we're super excited. Our government relations team actually work to help achieve that -- the language of the legislation. Our experts on that team helped to drive those outcomes, so that we can be in a position to really help those goals be achieved. And our Sustainable Technology Solutions business that Andrew spoke to back in November, which we call STS, we're growing orders double digit, we're getting so much interest since the IRA, I think, 2 to 3x the level of interest than before the IRA legislation. Still on pace to hit our target of $700 million of sales in that business by 2024 and really believe that it is going to amp the overall market opportunity for Honeywell and our carbon capture and our renewable energy, renewable fuels business, by at least 50%. So this is an enormously exciting area for us to dig our teeth into and just super excited. So thank you again for speaking with us today.

Absolutely. I think you deserve to be long-winded because there's a lot of information to unpack there. So let's talk about the metrics. What are the top 2 or 3 metrics that you use to measure your progress in ESG?

Sure. I'd be happy to handle that. And I joined Anne and thank you guys for coming to speaking to us today. First of all, I want to point out that, that is a very timely question because for things like the SEC proposed rule and similar things in Europe, the focus on metrics has just kind of gone through the roof right now. So this is something that everyone is paying a lot of attention to. I think, fortunately, for like an engineering company like Honeywell, you don't have to worry so much about a really robust approach to data, and I think that's very true from our own experience. From the very beginning, which Anne said was back in 2004, we have [ viewed ] very closely to the carbon accounting rules, and I'm very happy about that to put together our inventory. And then since 2011, we have had our carbon numbers third-party verified. So for more than a decade, every year, and then since 2012, we publicly reported those numbers. So anyone in the world can just log in and see exactly where we are. So we have a lot of indicia of quality of the numbers that we're very, very comfortable with. So in terms of what metrics do we look at, another thing that we've done consistently from the beginning is set public targets that we put out there on our web for everyone to see, and a lot of our metrics go around how are we doing against those targets. We -- the things that we look at on a monthly basis are -- more often are exactly where are we on our carbon footprint, and then what projects do we have in the pipeline that will ensure that we're making appropriate progress towards achieving those targets. And I report them up to Anne and to our CEO every quarter, and we formed an ESG Review Board that includes our CFO and our new President. And so everyone has a lot of eyes on these on an ongoing basis and, again, including the public at large through the public reporting. The other thing that we've been looking at more recently is you may have seen that Honeywell has recently published an Environmental Sustainability Index, and we're starting to look at that really intently every quarter. It's a survey of more than 700 sustainability professionals, and the intent is to get the sentiment from those individuals that are really working in this field about how they think it's going. So it's a sentiment index, but from my perspective, that brings a lot of value, and it's got some really interesting sort of insights that you can pull from it. First of all, sustainability is very high on the corporate agenda. Within sustainability, climate is the dominant issue right now. But what's been really interesting in the last report is you're seeing other issues start to grow. And what that says to me is that we're kind of building the muscles around climate, but then those muscles are in place to start addressing other things like circularity and pollution prevention. So I think that's really interesting. Another really interesting thing is that the sustainability professionals are very optimistic about the recent past and the near-term future about achieving their goals. And I think some of that comes from another point from the ESI is that a large majority of companies are increasing their budgets for sustainability. And I think also, as Anne mentioned, things like the IRA, so you've got public funding and companies are increasing their budget, and that's led to a pretty widespread optimism. The optimism drops off as you start looking at longer-term targets. And from my perspective, that again feeds back to this need for more innovation on some of those key areas like carbon capture and storage, green hydrogen, SAF, which Honeywell is bringing to market, but everyone sort of sees that those are the big pushes. And as those technologies evolve, I think you're going to see that optimism start to improve as well.

Just to back it up. For our commitments that we have made and some of the metrics that we are trying to [ look forward ], it's an opportunity or a need for us to re-anchor our innovation machine. Maybe I'll take 2 minutes to highlight. The last 2 to 3 years, you heard a lot of our transformation agenda. We were simplifying our manufacturing footprint. We're investing a lot more in digital, and there are some other portfolio recorrection. We stood up a software business, connected enterprise. But then 5 years ago, Darius asked me to start measuring the innovation. And then the first metric that we reported on was vitality events. And then we took the company the last 4, 5 years almost 50% growth. But then we started slicing that innovation metric. I think what is core, what is net new, meaning net new has to be literally a breakthrough innovation, driving organic growth. And then I'm happy to say that almost 60% of new products that we've created in the category in the last probably 5 years -- or 3 years, I should say, 60% of them fall under the ESG category. And predominantly, you'd see more in BMT because you actually visited them, and you will actually hear a lot more today. But the crux of our innovation machine, the reanchoring, also starts from the fact that we believe it's still a control system company. Our innovation starts with sensors, materials and control system foundation. I think that fundamental shift that we are trying to push. You'll hear a little bit more today, and that is key. I think Anne talked about two important metric, 60% of our spend in ESG category, 60% of sales. But one thing I would actually say is if you take all our technology that we have today and we're going to be launching in the future, we believe that we would have an opportunity to address the [ 50 ] version of global GHD emissions needs. I think that's a big thing. I mean, our team have really done a full study that has really born math without. I think that's a huge thing to say. Greenhouse gas emissions, 50% of them, we can actually share our growth with the technology [indiscernible] we have. So I want to back what [indiscernible] talked about.

That's huge. I mean, 50% of global greenhouse gas emissions. So how has your operating system evolve to drive improvement in the FG metrics? And Evan, maybe you could start on this one.

Sure. I guess, I'm the systems guy. So yes, that really has been sort of a wonderful voyage. I think if we were to say what an insight perhaps that we had early on, and I think it is because we are, again, an engineering company, very process-oriented. And I think one of the insights that we had early on was that same sort of core business operating process that companies used to achieve all their key objectives like quality, delivery, inventory and cost. They work just as well for sustainability. So we embedded sustainability into our core operating process. And so those same tools and the same language that the entire company used us to achieve all of its objectives also attached to sustainability. And as I have mentioned, this process has ended up with our -- improving our greenhouse gas intensity by more than 90%, which I think is -- there's not many that could say that. And I think what sort of ties to that insight is that sustainability has to get past that stage where it's kind of like a precious little side show, and it has to become that point where it's actually part of how you do business. And we see a lot of analogs to the quality revolution in the 20th century. Quality revolution, they did a lot of innovation around tools and processes, but ultimately drove a quality culture in large companies that created huge improvements in quality. That was the 20th century. We believe that the 21st century is going to be around building a sustainability culture in sort of the same way.

And [indiscernible] to do augment to what Evan said, Honeywell operating system, that's what you've heard about for many years. We recoined or react to the name right now called Honeywell Accelerator. Just to simply put it, it's the fundamental tools, processes, policies and technology or tools that we try to standardize across the diverse portfolio that Honeywell has. To really go back and ask the question, what do you have in Honeywell Accelerator, there are fundamentally 7 pillars. It starts with strategy, finance, customer experience, commercial, innovation, supply chain, you name it, those 7 elements. But what's different this time around is we're re-anchoring around business model, by projects, by products, by software, by services. In fact, I'm actually leading, along with the technology, reanchoring our projects portfolio business across the company. How do you really stack up the operating system across various projects business, so that you have a theme set of tools and process and policies to drive a fundamental transformation of businesses. And then what's great about that is ESG is intertwined across the process, tools and foundation that we have. I think we have had that, and I think we know how to really measure and track it. But the fact is like with the high-level confidence, I can say, given that I'm actually deployed to the projects business, it's intertwined today. I think you were starting to see Honeywell speaking the language on our operating system by business model. I think that will be a great beginning, and ESG will be intertwined strong.

Yes. So this is really part -- very, very intricately woven into every initiative. So let's talk about how environmental initiatives are embedded within every business at Honeywell, and Evan, maybe you could take this one first.

Sure, sure. I mean, happy to. Again, I think you have to always just talk about systems, and so we're going to be very nitty gritty here. Every one of our larger plants is required to do regular audits throughout their operations to say, "What can we do to reduce our greenhouse gases?" All of those findings are loaded into a centralized database. From there, they make targets that have to be approved by the CEO. Then we track implementation of those projects. And again, I report up quarterly to Anne, to our CEO and to other senior leaders to make sure they're actually getting done and that we are making the right process. One thing I do want to mention is that underneath these tracked projects, there's a huge web of smaller projects that are being done sort of at the plant level through the Kaizen process and sort of continuous improvement. And we think that's very important to not just focus on the big ones, but you get that employee engagement when literally anybody can bring an energy efficiency idea and get it done because that makes people excited about it and to hear about it. And then -- but with those larger projects, we are committed to spending at least $50 million a year, and these are on things like site deployment of solar, changing processes, changing -- we have a really interesting one going on right now, where it's changing scrap levels in processes, which can end up -- so it's very -- if we didn't have that process, then you wouldn't be able to drive out this volume of projects. And I guess, the last thing I'll say that this -- the process can do is it allows you to propagate good ideas pretty quickly across the organization, like Honeywell manufacturers variable frequency drives, which can create huge efficiencies in cooling and heating systems. Well, once we implemented some -- at some sites and saw how well they work, we now have a centralized process to find where can we deploy them across the global portfolio and get them out in their sites. And again, if you don't have a system, it's kind of harder to take one good idea and propagate.

Yes. And let me give another example there as well. So it's not just the carbon emissions, but it can be all different aspects of addressing greenhouse gases. So we're working on a project at one of our sites, which is one of our largest consumers of hydrogen, and that's a site in Illinois. And we're looking at putting electrolyzers in there, so we can generate the hydrogen from green hydrogen. So we're working with one of the larger electrolyzer developers. And we'll actually be deploying our own technology for the catalyst coated membrane into the electrolyzers. So we're a little bit away from announcing it yet, but probably in the next week or 2, we'll go ahead and announce that project.

Excellent. Well, it's a great answer. So you pointed out that in '21, more than 60% of Honeywell's sales contributed to ESG-oriented solution. How do you define this? Like how was it defined?

Yes. It's a great question. There are no real common rules out there today for how to define this enormous bucket of what ESG stands for. So for our sales, we adopted a framework and a rigor that we can tag revenues and audit them, so that it's a repeatable process that is inherently consistent year-over-year. And so we identify our products, our services, our solutions as ESG-oriented if they fall into 1 of 4 buckets. And bucket 1 is energy and environmental transformation. So think solutions that improve energy efficiency or solutions that reduce emissions or renewable power, emissions monitoring and remediation. So an example of one cool thing we're doing today is in our Geismar, Louisiana facility. We're instrumenting real-time emissions monitoring and detection technology that is a complement between a number of our businesses to put it there for ourselves really as a showcase for our customers to observe how that works in operation. So that's a really interesting one. Bucket 2 is what we define as circular economy, so think the reuse of materials, the recycling of materials, the reduction in usage of materials. And so an example of that would be our upcycle plastics recycling technology and biosourced materials would fall into that bucket. Third bucket is health, safety and security. And so we look to our solutions that improve health care, improve patient well-being, improve worker safety, improve flight and fire safety that drive better indoor air quality, so those sorts of solutions. And then lastly, bucket #4 would be what we call resiliency and accountability, and this is really solutions that improve business continuity and the sustainability of business in the face of potentially adverse events, like cyber events and improvement in quality control. So an example would be our quality management system software in our Sparta Systems business, which serves the life sciences community. And real-time tracking and tracing and reporting, measuring real time, like in our smart meters, that would be our smart gas systems, that would be a good example. And so all those 4 buckets are in a formal framework that's digitized and repeatable and rigorous and auditable, so that we can be sure when we share that, disclose that information, it's on a same consistent basis with what you would want to visible to be, which is an auditable system of record.

Great. You also noted that around 60% of Honeywell's R&D dollars are targeted towards ESG solutions. So how do you prioritize funding internally to support ESG?

Maybe I'll take that. Probably, the question has 2 extreme levers: one, a disciplined sort of processes. There, we have picked in a strategic plan right now for next 3 years. And then we have a technology long-range plan that is going to be delivered next week to the CEO and Chairman and the leadership staff across all the businesses. Then we will follow that with a zero-based budgeting process. So there is a disciplined process that actually would focus our view on where do you want to invest, how do you want to prioritize, where do we want to really have a [ water ] line. So these 3 things will go together. But our vision is to really get and design and build decarbonization as a service in the future. If you need to really get to that end state, like decompensation as a service, that I think, very clearly, are key to the points are 5 -- 4, 5 areas, which is energy transition, sustainable materials to really getting down to sustainable buildings, sustainable aviation, sustainable logistics and then our software [ forged ] as a foundation. So most of our discussion in the recent past have been around strategic long-term direction, how do we resolve the most complex issues in the world, how do we prioritize our dollars, so that you're actually starting to really get to the critical areas where we need to invest faster to get to the market. And Evan talked about pilots within our sites because we have to really be able to prove either in sustainable building side, emission side, we are building more and more pilots, so that we can bring our customers to showcase what we are seeing and realizing at this juncture. But all in all, disciplined process, focus, you will hear a lot more today. I mean, each one in the category area, new technology that we are potentially going to be releasing that Gavin talked about, are you going to be seeing a lot more coming up in the next 2 to 3 years.

Fascinating. So let's talk about emissions targets, which is -- it obviously gets a lot of attention, a lot of -- many -- most corporates have set targets. The question is how everyone gets there. So in 2021, Honeywell announced the target to attain carbon neutral operations by 2035 in its facilities and operations, which is 15 years ahead of the Paris Agreement target. So Evan, maybe you can walk us through your current sustainability strategy, the progress you've made to date and the focus areas over the next several years. And I think we would all love to hear some examples of carbon neutrality projects that Honeywell has underway as we speak.

Sure. Yes. No. Well, this is a point where you're really very grateful that we put such a strong process in place back in 2004 and continue to develop because that process is still generating benefits. And in fact, just deploying that process, just since we made that commitment in 2021, we have either completed or have in the field right now projects that will knock out another 25% of that 2021 footprint. So we're off to a really good start. And then you look -- and again, this is what we look at on a daily basis and send off on a quarterly basis, so we really know where that footprint is. It now falls into 3 big buckets, and those buckets, what's interesting is that they also tie closely to Honeywell Technologies. So the theme here is going to be, we know what the buckets are, we know what the Honeywell technologies are, we want to marry them up as much as possible. The first big bucket is process emissions. These are greenhouse gas emissions coming off of our processes. Honeywell has 2 fantastic technologies that we are currently actively deploying and engineering at our sites now. These are ones that are in process. They're not done yet, but they're in process now at the site. And those are carbon capture and storage and also the Rebellion imaging cameras. People don't realize that a lot of greenhouse gases are what are called fugitive emissions, which are emissions that are coming off of things that -- it's not coming out of a stack somewhere. And what Rebellion allows you to do is image those gas clouds and remediate them. You can't do anything about them. You probably know in the last COP that methane was one of the most important issues talked about, and these cameras are very effective at that. They're also effective with other gases. So those 2 technologies are things that we are currently deploying in our plants right now, and we think those are going to take a big bite out of that first bucket. Second big bucket is electricity. And there, again, we have a lot of technologies around efficiency and also carbon capture -- sorry, and also battery storage. And battery storage is essential for the deployment of renewable energy on a big scale. And one of the things that we're doing that's kind of fun is that we actually have a lot of experience managing legacy properties as well. So we're kind of pulling that all together, and we're actually putting utility scale renewables on some of our legacy properties, which will also incorporate the Honeywell battery technology as this moves forward. Those are going to take a big, big bite out of that second bucket. The other thing we do a lot with energy efficiency is building management systems. That's sort of one of our core competencies, and we are expanding that out to both identify and capture the building footprint, but also to start optimizing that with AI to drive energy efficiency. And then the third bucket is natural gas primarily or other fuels, but primarily natural gas, combusted on site. That is a -- it's a large -- it's our last big bucket, and it's a huge bucket for the economy generally. And we, again, as Gavin mentioned just earlier, have some really exciting technologies in green hydrogen, which we believe over time is going to be that replacement fuel for natural gas. Since Gavin is such an expert on green hydrogen, I don't know if there's anything else you want to say, but we're looking to that to be a big bite out of that last bucket. Gavin, anything else you want to say about our green hydrogen?

No. I mentioned that we have the first deployment, but I think it's going to be really important for us to get this technology demonstrated. And then it's going to a level that we can use across many of our sites in the future because anywhere where you're firing natural gas as a fuel, you can switch to hydrogen instead, and that will immediately get you to a much lower carbon footprint. So you can expect to hear a lot more green hydrogen announcements, I think, coming -- going forward.

The one additional thing that I want to add is on Rebellion, he talked about Rebellion gas cloud imaging. What's unique about that is everybody will talk about buying -- meeting sensors that you can instrument and collect the theme data. You could do that in upstream and downstream. Midstream is very, very complex. And a technology like this augments both our node sensors that you can mesh up and integrate with this gas cloud imaging. I think Gavin can try to highlight it. I think we are pretty well positioned to address all the 3 streams.

Fascinating. So let's talk about Scope 3, and you mentioned your Science Based Targets initiative. Can you talk about how Honeywell plans to reduce Scope 3 emissions?

Yes, absolutely. So as I mentioned a little earlier when we opened the discussion, we've applied to and we're awaiting SBTi to set our Scope 3 emissions target. But we're certainly not waiting for that to be formalized to make progress. And so we're busily making progress around our Scope 3 commitment and our plans. And the really -- Evan said it a little bit before, the cool thing about Honeywell is we are the innovator of the technologies that are going to help the world solve these problems, but they also are going to help us solve our problems because Scope 3 emissions are largely off the back of the products we put into commerce today. And so when we innovate to improve those products, we're reducing our Scope 3 emissions. And so all those solutions that our customers need, we will be innovating. And it's so virtuous because when we put those newly innovated, improved products into commerce, it will reduce our Scope 3 emission. So there's a really kind of special synergy there for Honeywell because these are innovations that are coming out of our labs. And so we really think decarbonization is here to stay. It's going to be our generation and the next generation's biggest problem to solve. And we can't do that without the innovations like the ones with Honeywell is producing. And so we're exciting to see what more we can do there around the Scope 3. Evan, I don't know whether you want to add anything to that.

Yes. No, I think you said it exactly right. I mean, there's 15 categories of Scope 3. And the best thing that companies like Honeywell could be doing, innovating products that generate fewer emissions, whether upstream or downstream. And we've done that tremendously, for example, in the HFC area where we develop HFOs after 10 years of research, that this is a refrigerant low load -- with our Solstice brand, low global warming potential refrigerant. And I think as Anne mentioned earlier, we're talking about having avoided something. I can't remember what the exact number is now, but it's close to 300 million metric tons of CO2e to the atmosphere. So it's going to be about innovation, and we're going do it.

Right, right. That makes sense. And when it comes to disclosure, do you envision any changes in the way you report emissions or climate risk, especially as the SEC makes new regulatory mandates?

Yes, this is a topic, Savita, that's very close to my heart, as one of the folks here at Honeywell that's responsible for our disclosure -- public disclosures. The -- I have zero quarrel with the theme that the SEC is driving to because I think more disclosure is better on these topics. I think where registrants really struggle is there is still a lot of complexity and variability in terms of the way in which people report. So I think we're in a good spot today at Honeywell because we already report -- we use SAFB and we use TCFD and CDP and our -- there's a wealth of information in our 2022 ESG report. And so we have a ton of disclosure out there already. Will we need to do more? We absolutely will need to do more. The SEC will require people to do more. And I think the trick will be driving to real clarity around how you're trying to standardize the measures to make that reporting consistent for the investing community. So they actually understand period-over-period what it is you're disclosing and why and how because I think that they're going to struggle to get comparability of data across disclosing companies, because it's just -- it's ill-defined at the moment. And until SEC drives to further define for people the how to and the whats and the wheres and the -- those definitional elements, it's going to be that messy. And I think the other complexity added to the disclosure framework is not just what's happening in the U.S., but what's happening in Europe with the EU taxonomy and those different standards of reporting and country-by-country differences in the reporting. And so I think it will be easier for a company like Honeywell that's instrumented naturally to report to bring it all up to a high watermark of consistent disclosure. I think it's going to be much tougher on companies that don't naturally have the infrastructure set up that way, and it's going to cause them, I think, to have to do a lot of new things to instrument themselves with software and reporting tools to get there. So my prediction is, yes, it will result in more disclosure. It will have to in the near to midterm. But until that quality and consistency of disclosure is refined, I'm not sure that investors are going to be clear with what it is.

Yes, you're right. Absolutely, absolutely. Interesting time.

Yes. So maybe we can dig in on sustainable technology solution and specifically carbon capture and storage, which was a big topic last fall. So maybe, Suresh would like to discuss the establishment of your Sustainable Technology Solutions business. What was its Genesis? What are its key pillars? And what is the long-term growth potential for this business because it's actually quite exciting?

Yes, yes. Happy to, and we did spend some time to that part of the business. We've been a provider and innovator in technologies that will reduce the environmental impact for almost more than a decade. Some of the foundational technology that we are really, really happy that we innovated are unleaded canceling, biodegradable detergents or ozone-friendly and global warming refrigerants. I'm happy that Gavin was the CTO for the business for the last many, many years. Almost more than a decade, he was a part and parcel of this innovation at the time. The genesis of STS business started with probably 2 of the developments that we have had in the last 10 years. One is renewable diesel. The other one is the jet fuel that we brought in. And then we would -- many of them may not know, the first 15 flights in the world that use the renewable fuel with our technology. And that led into Darius, I think you asked a question on Genesis. 2019 -- '18, '19, Darius felt there was a big potential need to shape up sustainability portfolio for Honeywell, and then he took the renewable fuel business. And then along with it, he kind of augmented some of the greatest breakthrough innovations we had, which was on carbon capture, to low-carbon intensity hydrogen, to long-duration energy storage, to our plastic recycling technology. So we pooled all the 5 pillars together from this business. As you probably heard, the pipeline is building up, and there is also IRA that is really creating an opportunity for our customers to come and trial test it. It's very, very important. Recently, you would have heard about the ExxonMobil hydrogen project. Happy to say that we are actually starting to line up a number of different -- both blue hydrogen and carbon capture projects, which you're starting to see a lot more announcements coming up. But what is interesting is, even with everything that we talk about, the pilots and the pipeline of this juncture, I think the potential is enormous. I think one of the data that we actually heard was the plans to start up that they will only supply about 5 -- less than 5% of global jet fuel needs. So I think we actually see a potential opportunity to really serve and deliver in the market much more. And I think it's actually a good beginning point. And then you'll hear a little bit more on SAF and everything else later, but everything is going to be from the business.

And maybe a question for Gavin. The company has a unique role to play in carbon capture and storage clearly. Can you help us understand Honeywell's competitive advantage in this space, right? I think you've already started winning projects here. I think ExxonMobil Baytown complex as an example. So what geographies have the most potential? And when should we expect consistent revenue from this business, right? That's what we get asked. And how do economics work for Honeywell?

Yes, well, obviously, it really helps to have a good head start. So we encountered the removal of carbon dioxide from natural gas in our natural gas and refining business as early as the 1950s and '60s. So we've been developing separations technologies to take acid gases out of hydrocarbons for -- alongside. In fact, we have about 4,000 operating acid gas treating plants that do carbon dioxide removal already in operation. So we realized that this expertise that we have could be applied to carbon capture from other sources as well. And we wanted to make sure we had really good solvent systems for removing carbon dioxide from the biggest point sources, with -- most of which are combustion sources, rather than natural gas coming out of the ground. So we partnered with one of the world's top experts in solvent development, Dr. Gary Rochelle of the University of Texas. And Gary helped us develop the solvent that was specifically designed to be robust in post-combustion service. So this gives us, what we call, an advanced solvent for carbon capture that has a unique cost position in carbon capture from big point sources like oil refineries, steel mills, cement plants, things like that. So that's really why we have such a strong competitive position. Obviously, carbon capture and storage can work in any geography. You can drill down and find a place to put carbon dioxide underground most places where the geology is good. But what really helps to move the business forward is to have a strong legislative framework that supports the path towards a net zero greenhouse gas emissions economy. The U.S. IRA is a really good example of legislation that's going to drive faster adoption because when companies see a path to getting tax credits or subsidies on a long-term basis, then they'll commit to making these kinds of projects. So the IRA is unlocking a lot of business. We're already seeing units signing up. So we're seeing the revenues becoming much more consistent, and we expect this business to keep building because other countries are going to copy or implement similar legislation. So once we have a good legislative framework in place, we see this going ahead around the world.

And Suresh, sort of along similar lines, can you provide some background on sustainable Building Technologies business? How and why was that created, key pillars and the long-term growth potential, that's one?

Yes. Andrew, you've known that we've had probably multi-decade experience in buildings, technology and innovation around the space. But just during the pandemic, we saw the extraordinary need for our customers around healthy building and occupant well-being. So we've pivoted, really built a number of unique technology innovative for them during that particular period in time. But that led into more and more of our customers in the last 2 to 3 years starting to realize that it's more than that because they're recognizing the need to improve the efficiency of the assets in a building and also design to really reduce carbon footprint. I think it is also led with some of the key trends that is happening in. 40% of our global emissions in the global market are attributed to the buildings. And then on top of it, U.S. and EU are targeting almost 50% of carbon reduction by 2030. And then on top of it, 20% of top 2,000 companies have almost net zero goal. So when you really add all the pieces together, I think we're uniquely positioned to really pivot our portfolio. That's the reason that we built after STS -- 2019, last year, we built a sustainable building technology portfolio with a clear focus in pooling all the pieces of technology from various partial businesses with software, how do we solve the unique problem. And I think, at this juncture, the businesses that are close to -- 2022, the business had probably close to around $500 million business. We believe that it could be, in the next 3, 4 years, a $1 billion portfolio for us. But again, one of the true thing in the next couple of months, you're starting to realize this building is going to be one among the pilot for us to really showcase both energy efficiency and sustainability of the future. But what we're doing right now is instrumenting everything from AHU, to VAVs, to lighting, to occupant data. And maybe in the next couple of months, you're starting to really have a showcase of the building, so that it's not just a presentation, and we will have more pilots just like we talked about emissions, we'll have more of Honeywell buildings be a showcase for our customers and rest of the world.

I'm not sure folks realize how embedded you are, the whole ecosystem of building management with the software. And Gavin, a question for you. Sustainable aviation fuel has been in the headlines recently. Given your joint venture with United Airlines, Honeywell announced its ethanol to jet fuel processing technology in October. Can you talk about Honeywell's offering and your competitive advantage in sustainable aviation fuel?

Yes. So there's a lot of ways you can make jet fuel from renewable feedstocks, which is sometimes called sustainable aviation fuel or SAF. The easiest one, of course, is if you start with things like fats, oils and greases, the molecular structure is actually quite similar to conventional jet fuel, and you can get there in a couple of chemical steps, and that's the technology that we developed in 2010. And of course, that accounts now for about 100% of the SAF that's coming to market. We've licensed 33 projects of that technology, 15 of them just in the past 2 years. But everybody knows there's a limited supply of non-edible fats in the world. And to convert all the jet fuel to sustainable aviation fuel, you've got to expand the range of feeds that can be converted. In fact, just earlier this morning, Ed Bastian was talking -- Ed Bastian from Delta was talking here at the NextEra conference, and he was saying that they see the same problem that they've only been able to source half of the SAF that they expect to need by 2030. So we need to expand the feedstock supply. And fortunately, one of the things that's going on at the same time is, of course, people are switching from gasoline to electric cars. And that means the bioethanol that's currently blended into gasoline is becoming available as an additional feedstock. So we put our chemists on this a few years ago to develop a route going from ethanol to olefins that can then be converted into the jet range with very high selectivity. And this has 2 advantages. Of course, it expands the jet supply, but it also helps sustain the ethanol industry, which is tremendously important in rural communities. And so this is good for decarbonization. It's also good for sustaining jobs in agricultural areas. And apart from the actual technical advantage we have in higher yields, we're able to leverage some of the know-how that we bring from modular gas plant construction and from building LNG plants and modular refineries. And so we can actually use this to modularize this technology, and that will help us build the projects faster. So by building the modular, we can reduce the time to commission a new plant and actually take basically a year out of the schedule to bring these plants to market. So all of these things are creating a lot of interest in alternative routes to SAF, and it's just helping to pick up the pace of decarbonizing aviation.

Looks to have a great place to wrap up the discussion. So thank you all for a thoughtful conversation. Thank you to everyone on the line for joining us for our first quarter leadership webcast, particularly on a Monday. We remain focused on continuing to perform for our shareowners, and we are excited about the future of Honeywell. We hope to see many of you in person in New York for our upcoming Investor Day on May 11, and we'll announce the next installment of our leadership webcast series at a later date. Thank you, all, and have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.