Oil’s Fall From Grace
This week, we talk about how the dual crises of climate change and the coronavirus pandemic have compounded the challenges faced by oil and gas companies.
Welcome to our weekly chat about the environmental and social issues that influence the way we work, spend our money and live our lives. We're your hosts, Maitane Sardon and Dieter Holger. Want to get our newsletter every Wednesday? Hit the subscribe button in the upper right corner and please share with your friends!
Hi Maitane. Oil companies have had it especially rough after the pandemic crushed demand, but the industry is also grappling with another crisis, climate change. Consider Exxon Mobil. In just seven years, it fell from its height as America’s biggest company by market value and now is expected to lose more than $1 billion this year. Still, Exxon has doubled down on fossil fuels unlike competitors BP, Repsol and Royal Dutch Shell, which are moving more aggressively into solar and wind power.
Exactly. In March, Exxon CEO Darren Woods called targets by some oil-and-gas companies to dramatically lower their emissions a “beauty competition.” Exxon says oil will be needed by the world's growing population for decades to come, and it plans to deliver the goods. Two years ago, it said it would invest $230 billion to pump an extra one million barrels of oil and gas a day by 2025.
Former and current Exxon employees told The Wall Street Journal they are uneasy with some of those recent bets and the company’s response to climate change. Instead of making investments in more established cleaner power, Exxon has pushed for emerging technologies like carbon capture and biofuels made from algae.
Those technologies might offer valuable solutions to the climate crisis in the years ahead, but they are still far from the scale and affordability that wind and solar energy have already reached. More companies, investors and governments are coming together for the “energy transition”, a broad commitment to make the global economy more reliant on cleaner power like renewables, biofuels and hydrogen. Currently, the world uses fossil fuels for around 84% of its energy.
Still, Exxon says its portfolio is “the strongest it has been in more than two decades.” Oil majors have big decisions to make about climate change and the pandemic has made things more uncertain, but aren’t some investors making money off the situation, Maitane?
They are. Did you know that you can make money by betting on companies harmed by a specific adverse event, like a pandemic? One way is through exchange-traded funds that invest in distressed companies. These ETFs offer a way to get returns when markets decline, although experts say some of these strategies could be risky.
One example is the AdvisorShares Dorsey Wright Short ETF, which short-sells companies within a sector that are weaker than their peers. The fund performed well in April and March, when there was a sell-off in global stock markets. It is up more than 5% this year. Some companies in the actively managed fund are luxury brand LVMH, Nestle and Chinese tech giant Tencent.
What am I looking at? The chart above shows the performance this year of a fund that is designed to outperform when the market is down.
Interesting! Anything else on your radar?
Yes! For the first time next year, there will be a woman leading one of America’s largest banks. Last week, Citigroup said CEO Michael Corbat will retire in February and be replaced by Jane Fraser, who is currently the bank’s president and the CEO of its global consumer banking division.
That is big news when you think about the financial industry’s past reputation as a stronghold of older, mostly white men. We might soon see more women taking the helm at other big banks. Marianne Lake and Jennifer Piepszak are two contenders to take over JPMorgan whenever its current CEO Jamie Dimon steps down.
We will keep an eye on that. Now let’s open it up to our readers: What do you think big oil companies like Exxon should do about climate change?
Share your thoughts below, email us or catch us on Twitter. Your words could appear in our next edition! Have a great week and remember to wash your hands. 👋
Meet the team:
Elevate the Conversation is produced by the editorial teams of The Wall Street Journal and Dow Jones Newswires. Here's a little bit more about us, along with our contact information. We'd love to hear from you.
Dieter Holger, Reporter: I have a knack for uncovering values-based investing trends and I’m obsessed with spreadsheets and charts. I really enjoy ‘80s music, skateboarding and yoga (but I’m bad at both). dieter.holger@wsj.com @dieterholger
Maitane Sardon, Reporter: I have a passion for amplifying the voices of those at the center of stories. I love running on Barcelona’s beaches and binging on chocolate ice-cream to compensate (it’s all about balance). maitane.sardon@wsj.com @sardomaitane
Catherine Lindsay, Editor: I like breaking down complex ideas and explaining them. On the weekend, you’ll find me wandering the city with my film camera at the ready. catherine.lindsay@wsj.com @CathsLindsay
Tammy Lian, Designer: As a visual producer, I'm always excited by the challenge of creative problem solving. In my spare time, you can usually find me taking care of my ever-growing collection of plants and drinking tea. tammy.lian@wsj.com @violian.tammy