Sunday, December 5

Big Oil Learns Carbon Scores Matter to Investors


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By Tim Quinson

(Bloomberg) —

Sometimes things just make sense.

According to Bloomberg Intelligence, Norway’s Equinor ASA and TotalEnergies SE of France have the highest “carbon scores” of the seven largest US and European integrated oil companies. These ratings are meant to reflect their progress toward carbon reduction, and that they have the most ambitious targets among their peers.

Their stock prices match this assessment, as they’ve been top performers in the sector for the past decade. By comparison, Exxon Mobil Corp. has the lowest carbon score in the group of seven (which also includes Eni, Royal Dutch Shell, BP and Chevron) and its stock price is the laggard.

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“Clearly, shareholders are persuaded by companies that are at the forefront of the energy transition,” said Eric Kane, director of ESG research at BI. The BI Carbon scores are designed to provide insight into which companies are leading and where targets stand relative to a temperature-aligned benchmark, he said.

Next week in Glasgow, Scotland, industry representatives will gather at COP26 with policymakers, bankers and other stakeholders for what’s likely to be the most consequential United Nations climate summit since the Paris accord in 2015. This time, oil and gas producers are under tremendous pressure to help prevent a climate catastrophe–assuming it isn’t too late.

Equinor’s high carbon score is based on the company’s commitment to have carbon-neutral global operations by 2030, and to achieve net-zero emissions and a 100% reduction in net-carbon intensity by 2050, Kane said. TotalEnergies plans to achieve net-zero across its operations by 2050, and to cut the average carbon intensity of its energy products used by 60% by 2050.

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Investors have taken note, as Equinor’s stock has climbed 114% in the last five years (including reinvested dividends) and 161% over the past decade. For TotalEnergies, the five-year gain is 34% and the 10-year total return is 108 %.

Equinor has “by far the best carbon intensity in its operations of the group and TotalEnergies has the most clear and coherent transition strategy,” said Will Hares, a BI analyst.

On the other end of the spectrum sits Exxon. The American company’s carbon score is low because it only plans to reduce the carbon intensity of its upstream operations by 15% to 20% by 2030, and has yet to announce a target that is inclusive of its Scope 3 emissions. Chevron Corp. is second worst.

From a business standpoint, Chevron is outperforming Exxon because it has “a best-in-class balance sheet, which has allowed the company to maintain its dividend through the Covid-19 downturn and keep investing in growth,” Hares said.

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By contrast, Exxon has managed to keep paying its dividend, but it has come at a cost as the company has “leaned very heavily on its balance sheet to do so and has struggled with operational performance and investing for future,” he said.

Exxon shares fell by a cumulative 3.1% during the past five years. In the past decade, the stock has produced a comparative paltry 20% cumulative return relative to its peers.

For oil companies, it turns out that it increasingly pays to be green.

Sustainable finance in brief

Tesla is the lowest-revenue company to hit $1 trillion market value. Investors holding $39 trillion prepare to dump fossil fuel holdings. Fidelity said it plans to halve carbon dioxide emissions tied to its investment portfolio by 2030. China’s climate road map outlines a plan to cap emissions, also by 2030. European Union emissions have fallen by one-third since 1990, thanks in part to renewables.

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Bloomberg Green publishes the ESG-focused newsletter every Wednesday, providing unique insights on climate-conscious investing.

Bloomberg Green at COP26: World leaders will gather in Glasgow next month in a bid to accelerate global climate action. Bloomberg will convene executives and thought leaders for events focused on local and tactical solutions. Topics will include achieving net zero, cutting carbon and methane emissions , advancing the transition to green transportation and investing in climate technologies. To learn more about the week of events and join virtually or in person, click here.

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