Corporations Turn Climate Crisis into PR Bonanza

The last post “Environmental Hero” published on February 11^th, discussed the great convenience handed to corporations by the Paris Agreement signed in 2015.  The climate crisis treaty asked nations to sign and pledge meaningful action that can avert the worst of global warming.  The treaty institutionalizes the idea that goal can be reached by completely balancing or negating the amount of greenhouse gases emitted by human activity by the year 2050. 

How is a balance to be achieved?  Reducing greenhouse gas emissions and absorbing carbon dioxide from the atmosphere.  It can be reduced to a handy mathematical equation with positive greenhouse gas emissions on one side and negative CO2 absorptions on the other.  The result must be reach zero.  Give it a catchy name and we are off.

Public relations professionals must have been dancing in their corporate aeries to the new tune:  ♪♫ net zero 2050 ♫♪.  The new paradigm makes it possible for corporations to drop the evasive climate crisis denials and begin marching along as a corporate do-gooder without need for any embarrassing explanation.  Cisco Systems imagery is seen at the left as an example of corporate climate alighnment.  Enterprise consultants have joined in, promptly issuing white papers on how corporations can set net zero targets.  For example, Barclays Research published a list of ‘five ways to net zero by 2050’.  

No matter what the company actually does in reality, it can claim responsible conduct vis-à-vis the environmental with their pledge to achieve ‘net zero by 2050’.  Some are actually serious about the goal.  Investors must be able to determine the difference between window dressing and reality.  Achieving net zero emissions by 2050 will involve product changes, new processes and potentially higher costs.  Each of those financial consequences will impact enterprise value.   

By 2018, one hundred major global corporations had committed to science-based targets aligned with the net zero goal set by the Paris Agreement.  A collaboration by the CDP (formerly the Carbon Disclosure Project), United National Global Compact, the World Resources Institute (WRI) and the Worldwide Fund for Nature (WWF) has produced a partnership called the Science Based Targets Initiative. 

Known as SBTi for short the partnership promotes best practices in emissions reduction by business.  Companies can get independent assessment and validation of their progress toward targets as a means to prove they are doing more than just talking.  SBTi has gone as far as setting a corporate net-zero standard to compare corporate goals with the objective of achieving the net zero goal by 2050.

SBTi claims over 1,000 companies have set emissions reductions targets using the partnership’s science-based methodologies.  The organization has been transparent about its clients and their progress.  In January 2021, SBTi published a report “From Ambition to Impact:  How Companies are Reducing Emissions at Scale with Science-based Targets.”  The report includes an outline of each company and lists its progress toward target completion.

What is more interesting than SBTi’s list of companies is which corporate ‘citizens’ are not on the list.  Included in the list, for example, are Enel SpA, Italy’s electricity and gas distributor, and Royal DSM N.V., the old Dutch State Mines owner of Netherland’s coal mines.  Wonderful, but investors should care even more than Exxon Mobile, Royal Dutch Shell, Total, China Petroleum and Chemical Corp., among the other major oil and gas producers, are not to be found.  None of those pesky science-based targets or standard for the fossil fuel champions.

That does not mean that oil and gas companies are entirely silent on environmental topics.  ExxonMobil is a good example of how the fossil fuel folks are handling the transformation from climate crisis denier to environmental hero.  ExxonMobil makes absolutely no mention of 'net zero' in any year, but instead has wrapped the cloak of ‘sustainability’ around its corporate shoulders.  The oil and gas behemoth has declared a full-throated commitment to producing the energy and chemical products essential to modern life and economic development “in a way that helps protect people, the environment and the communities where we operate.  This includes mitigating the risks of climate change.”

Of course, mitigating risks of climate change does not necessary mean that ExxonMobil is going to take any steps to actually avoid climate change itself.  Risk mitigation for ExxonMobil could just mean building higher off-shore drilling platforms so as to avoid losing their equipment as the sea level rises.  ExxonMobil published a beautifully curated Sustainability Report, which pays tribute to the United Nations Sustainable Development Goals. 

ExxonMobil has carefully chosen a paltry 8 of the UN’s 17 sustainability goals for its own contributions to the environmental cause.  To the company’s credit Climate Action is one of them.  Its report claims ExxonMobil was successful in reducing its greenhouse gas emissions by 5% in the years 2010 to 2019, through a series of energy efficiency improvements, reductions in well flaring, decreases in gas venting, and elimination of fugitive emissions. 

There are pledges for further reductions by the end of 2020, which suggest that ExxonMobile is accelerating its greenhouse gas reduction efforts.  Of course, December 2020 has come and gone and we have no update on progress.  Apparently, it takes some time to properly craft the message.  Or perhaps the company is just waiting for the end of 2025, when it has pledged to reduce absolute greenhouse gas emissions by 30% in ExxonMobil’s upstream businesses.  Absolute flaring and methane emissions are to be reduced by 40% to 50%. 

To give its sustainability effort and its report some credibility, ExxonMobile has engaged Lloyd’s Register Quality Assurance, Inc. to provide validate the company’s process for reporting using the IPIECA/API/IOGP industry guidelines.  Of course, these guidelines are produced by the oil and gas industry and investors can expect a framework quite favorable for any oil and gas member.  Do investors know where ExxonMobil is actually accomplishing the greenhouse gas emissions it claims?  Well, ‘maybe kinda sorta.’  Nonetheless, ExxonMobil’s sustainability report is beautiful enough to print in full color for the coffee table  -  a public relations bonanza.

 

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.