Lennox International (LII)

Company website 2020 Financial Report Stock Analysis 2020 ESG Report

41^%

of Lennox’s total product revenue comes from high-efficiency products

69^%

Reduction

in GHG emission intensity, 2009 - 2019

350

Stores

Lennox plans to increase the number of its stores to more than 350 by 2025 to expand its residential market reach

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The Path to Drawdown: High-Efficiency Heat Pumps

Buildings and construction account for roughly 38% of global CO2 emissions and 35% of total energy-use. Over one-third of that is for heating and cooling, which could cut energy use by 30-40% with maximum efficiency.

Heat pumps are the technology that can increase heating and cooling efficiency most effectively. Heat pumps extract heat from the air and transfer it from indoors to the outside for cooling, and from outdoors in for heating. The ground, air, or water can be the source of or outlet for that heat.

Heat pumps are well understood, easy to adopt, and already in use around the world. They can supply indoor heating, cooling, and hot water, all from one integrated unit. With high efficiency, they can dramatically reduce building energy use. When paired with renewable energy sources, they can eliminate almost all emissions from heating and cooling.

According to Project Drawdown, high-efficiency heat pumps need to continue growing mildly between now and mid-century to help achieve decarbonization:

<::marker> In 2018 high-efficiency heat pumps accounted for 3% of the market for delivered heat globally
<::marker> To stay below 1.5°C of global warming, high-efficiency heat pumps need to grow enough to account for 4.3% of that market by 2060
<::marker> That’s 0.86% growth annually between 2018 and 2060

If they can grow at this rate, heat pumps can help avoid up to 9.3 gigatons of GHG emissions.

About

Lennox International, Inc. (stock ticker: LII) designs, manufactures and markets a broad range of products for the heating, ventilation, air conditioning and refrigeration markets. Headquartered in Richardson, Texas, they have 220 stores across the United States and Canada, and serve 112 countries worldwide.

LII's Role in Drawdown

Lennox offers a wide range of heating and cooling products and services (p. 1) for residential and commercial customers. For the residential markets, which accounted for 65% of Lennox’s total revenue in 2020 (p. 4), they sell furnaces, air conditioners, heat pumps, packaged heating and cooling systems, equipment and accessories to improve indoor air quality, comfort control products, as well as replacement parts.

One heat pump that Lennox highlights is their XP25 Variable-Capacity Heat Pump (p. 12). It’s been designated as one of the Most Efficient Energy State certified products in 2020. This heat pump comes with a technology that adjusts heating and cooling output in increments as small as 1%, perfectly matching customer energy use with comfort as well as being incredibly energy-efficient even in cooler climates. They also also support renewable energy sources like wind and solar.

LII: What We Like

Lennox has set and achieved sustainability targets in the past and continues to set targets

<::marker> Since 2014, Lennox has reduced their scope 1 and 2 (p. 16) location-based emissions intensity by 23% through procuring renewable energy (including Renewable Energy Credits) for operations where on-site renewable energy is not feasible
<::marker> They intend to reduce their energy usage intensity by 25% from a 2014 baseline (p. 17) by 2024. To achieve this target, Lennox is part of the Department of Energy’s Building Better Plants initiative to reduce a select group of their US facilities’ energy efficiency intensity.
<::marker> So far, they’ve reduced their energy usage intensity by 14% since 2014

What We Want to See Improve

Phase Out Fossil Fuel-Based Energy

As of 2020, only 9% of total energy (p. 42) that Lennox consumed came from renewable energy sources. This is unacceptable for a company that purports to be concerned about and working toward mitigating climate change. We urge Lennox to phase out the use of fossil fuels in their operations and transportation, and switch completely to renewable energy and clean fuels as soon as possible.

Reduce Absolute GHG Emissions

Targets are aimed at reducing emission intensity. They report (p. 50) that they plan to share ambitious emissions reduction targets for scope 1, 2 and 3 emissions in the next few years. We hope that these targets will be geared toward reducing absolute - not relative - emissions.

Clean Up Supply Chain

Lennox relies on over a thousand suppliers (p. 29) to provide raw materials and components used to manufacture their products. We applaud Lennox for developing a comprehensive code of conduct for their business partners which includes an expectation for them to adhere to environmental laws and regulations. But we would like Lennox to be even more proactive by emphasizing emissions reductions as a more prominent part of their supplier code of conduct.

Related Heat Pump Stocks in the Climate Index

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Allocated	Company	Description
2.88%	Carrier Global (CARR)	Carrier equips buildings with high-efficiency HVAC systems to improve energy efficiency - key to cutting emissions in the building sector
2.74%	Trane Technologies (TT)	Trane makes and sells AC, building management, heat pumps, and refrigeration systems, helping buildings achieve energy efficiency and emission cuts
0.69%	Lennox International (LII)	Lennox makes high-efficiency heating, ventilation, air conditioning and refrigeration products, helping building managers cut energy use and emissions