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Exxon escapes fraud charge, but not climate risks

ImpactAlpha, Dec. 11 – A New York judge found ExxonMobil not guilty of deceiving investors about how it accounted for the cost of future climate-change regulations. The oil and gas giant escaped charges of securities fraud, but it may be harder to shake off the declining value of its massive fossil fuel business.

Chevron on Tuesday wrote down the value of oil and gas assets in Appalachia, the Gulf of Mexico and Canada by $10 billion, one of the largest energy write-downs in years. Last week brought a $5 billion write-down from Spain’s Repsol. The signal: Expect more write-downs as the market wakes up to the risk of “stranded assets” (see, “Agent of Impact: Mark Campanale, Carbon Tracker Initiative).

“Companies that fail to plan for a net-zero world will inevitably get caught — and investors will pay the price in unplanned write downs and an economy battered by massive climate impacts,” says As You Sow’s Danielle Fugere.

Oil and gas companies will have to shrink production by more than a third to meet the goals of Paris climate agreement, according to Carbon Tracker’s “Balancing the budget report.” The report notes “companies that continue to sanction higher-cost projects which do not fit with a lower demand scenario risk destroying significant shareholder value through the creation of stranded assets, as well as contributing to the failure to achieve climate goals.”

The rise of electric vehicles will put further downward pressure on demand, Carbon Tracker’s Mark Campanale told ImpactAlpha (see “Speeding down the road to electric vehicles, powered by China“).

Chevron’s $10 billion write down is part of the oil and gas shrinkage,  he said. The real question, he says, “Is now is how representative will it be of the sector as a whole?”

Climate shocks

The re-pricing of climate risks extends beyond energy companies, especially as the near-term policy response to climate change is priced in. “Markets are mispricing the potential for an abrupt and disruptive shift in climate policy,” says Grantham Research Institute’s Nick Robins (see, “Risk, adjusted: BlackRock and Mercer signal the repricing of climate risk.”)

The 100 worst-performing companies in the iShares’ MSCI All Country World Index, for example, could lose 43% of their current value, according to Inevitable Policy Response, an initiative led by UN-PRI. The 100 best performers could gain gain 33%.

Fewer excuses

Italian multinational energy corporation Enel plans to be carbon-neutral “well before 2050” and is investing heavily to consolidate its position in renewable generation. “The technology solutions needed for decarbonization are largely available, abatement costs are falling, and barriers to action are often overstated,” said Patrick Herhold of Boston Consulting Group, which released “Net-Zero Challenge” with the World Economic Forum.

Examples of proactive climate action are in the minority, according to the report. More than half of nearly 300 energy companies fail even to disclose carbon emissions.

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