Introduction
In last week’s column, I had focused on those reputational risks which confront ExxonMobil, and are not risks directly arising from its performance in regard to global climate change and energy transition. Today’s column addresses this omission in my coverage. Readers would recall that last week I referred to three such reputational episodes; namely, 1) Recent activists’ challenges over the Membership of ExxonMobil’s Board of Directors; 2) the company’s 2020 removal from the Dow Jones index; and 3) the recent significant slippage in its Fortune 500 performance on the list of companies for 2021. While each of these reputational episodes can be separately rationalized, their coming together over the 2020-2021 period has certainly aroused a noticeable rise in the level of investor concern over the commercial standing of ExxonMobil. Before leaving this topic, I refer briefly to a fourth such episode in the following paragraph.
Reputational Episode 4
Given the massively disruptive 2020 pandemic, Bloomberg and Investopedia have produced brief analyses on trends in zombie firms. Both report that, these trends reveal that hundreds of corporations had arrived at zombie status, adding about US$1 trillion of debt to balance sheets. Indeed, the total zombie debt for the US is estimated at just under US$2 trillion; the highest ever.
However, the significant observation for us is that while firms can and do exit their zombie status, as many as 60 percent of those that manage to do so end up being lower productivity, and generate less profits and employment than their peers. This circumstance facing exiting zombie firms potentially threatens Exxon Mobil with on-going reputational risk.
The Task
After six years of reporting on Guyana’s emergent petroleum sector, and deep immersion in analyses, reports, business, and academic research studies of ExxonMobil as a private international petroleum corporation, I am harshly critical of its company culture and role in dealing with global climate change and the energy transition. I shall offer my critique of the company in next week’s column. In pursuit of balance and fairness I devote the section below to a full and, hopefully fair presentation of the corporation’s position on this topic. Of note, I deliberately rely on Exxon Mobil’s own words as contained in its revised declaration on this topic [February 2022].
Exxon Mobil on Climate Change & Energy Transition
1. Net Zero Scenarios
According to ExxonMobil, its concern over climate change has led to its announcement to reduce greenhouse gas emissions under the regulatory framework of the United Nations Conference of the Parties Summits. It therefore commits to halting CO2 emissions, along with the ambition to achieve “net-zero.” Net-zero means its greenhouse gases emissions will be balanced by actions to remove same.
The company pledged to lead the global energy transition, and has also pledged to achieve net-zero with respect to those emissions arising where ExxonMobil is the legal Operator.
ExxonMobil has also admitted that the success of its energy transition strategy is dependent on its ability to recognise and respond to key signposts of change in the global energy system on a timely basis, as well as its corresponding ability to direct investment to the technologies and businesses at the appropriate stage in order to optimise its competitive strengths.
2. Greenhouse gas restrictions
In regards to greenhouse gas emissions, Exxon Mobil observes that typically, Government actions intended to reduce greenhouse gas emissions vary, including cap and trade regimes; carbon taxes and trade tariffs; renewable usage requirements; restrictive permitting on mileage and other efficiency standards; mandates for electric vehicles; mandates for use of specific fuels, technologies, as well as incentives designed to support transitioning to lower-emission energy sources. Alongside this, political and other actors and their agents increasingly advance climate change objectives; for example, to affect financing and investment in the oil and gas sector. They also take actions intended to promote changes in business strategy for oil and gas companies.
Depending on how policies are formulated and applied, the policies listed above could easily affect investment returns, as they affect directly the cost, supply, price, and demand, for hydrocarbon-based products
3. Technology and Low Carbon Solutions
Achieving reduced greenhouse gas emissions and net-zero require new technologies, such as carbon capture and storage. For this and related purposes, ExxonMobil has established a Low Carbon Solutions (LCS) business unit to advance the development and deployment of these technologies and projects. The company’s efforts include both in-house R & D and collaboration with leading universities and other commercial partners in this area. The document admits future results and success through the energy transition will depend in large measure on the success of these efforts and its ability to adapt and apply the strengths of its business model for providing energy products in a cost-competitive manner.
3. Policy and market development
Finally, ExxonMobil suggests the size and scale of the world’s energy system means that, in addition to developments in technology as discussed above, a successful energy transition will require appropriate support from governments and private participants throughout the global economy. The ability to develop and deploy lower emission energy technologies at commercial scale, and the growth and future returns and other businesses will depend in part on the continued development of supportive government policies and markets. Failure or delay of these policies or markets to materialise or be maintained could adversely impact these investments. Policy and other actions that result in restricting the availability of hydrocarbon products without commensurate reduction in demand may have unpredictable adverse effects, including increased commodity price volatility; periods of significantly higher commodity prices and resulting inflationary pressures; as well as local or regional energy shortages. Such effects in turn may depress economic growth or lead to rapid or conflicting shifts in policy by different actors, with resulting adverse effects on our businesses.
Conclusion
Next week I wrap-up this presentation and offer my critique.
