It could be argued that Exxon is actually an energy company, but it’s still an energy company that knows where its bread is buttered. Oil and gas is the winning game for this company, not solar.
Thus wrote Jeff Siegel this week on the Energy & Capital website. Siegel was referring to Exxon Mobil Corporation’s thumping of shareholder resolutions by As You Sow, the Interfaith Center for Corporate Responsibility and other religious groups intended to push ExxonMobil into naming an environmental scientist to the board and issue a report on the environmental impact of the company’s hyraulic-fracturing operations. Another study to be pitched on the growing pile of fracking reports issued regularly by industry and regulators?
Siegel is as clearheaded a liberal writer as I’ve come across on these matters. He writes:
Again, I don’t see the benefit here for shareholders.
Those who oppose fracking have plenty of this data, anyway. So to mandate such a report seems like a waste of time, particularly if the report indicates no negative side effects. You think anyone who opposes fracking would believe anything included in that report?
Interestingly, according to Politico, some of these proposals were the result of a growing rift between Exxon and the Catholic Church.
The company recently sent a representative to lobby the Vatican over an encyclical Pope Francis plans to deliver this summer on the impact of climate change. Exxon reportedly fears that such an encyclical could damage its business.
Exxon has nothing to fear.
It’s not as if the more than 1 billion Catholics in the world are going to stop driving their cars just because the Pope is railing against climate change.
Just as shareholders shouldn’t waste their time trying to turn Exxon into a solar company, Exxon shouldn’t waste its time kissing up to the Vatican. It doesn’t matter.
The bottom line is that the demand for oil and gas is going to be here for a very long time.
Yup! Siegel is right on the money – if you want more renewable energy, feel free to invest in it as it is offering pretty good returns at the moment. But attempting to force Big Oil to become Big Solar? I’ll let Siegel explain:
[T]he real reason ExxonMobil doesn’t invest in renewable energy is because renewable energy isn’t what Exxon does.
Exxon is an oil and gas company, and when folks criticize the oil giant for not investing in renewable energy, I just shake my head.
Would you ask McDonalds (NYSE: MCD) why it doesn’t invest in organic, grass-fed beef?
Would you ask Ford (NYSE: F) why it doesn’t invest in bicycles?
Would you ask GameStop (NYSE: GME) why it doesn’t invest in basketballs and footballs?
Precisely. But try telling that to the nuns, priests and other religious of the Birkenstock and granola crowd. ICCR and AYS have adopted a two-fold strategy of stranding assets in the ground, and using all the money that would’ve been spent on locating and extracting oil, gas and coal to develop solar, wind and geothermal, and divestment (see here and here) altogether.
Whereas Siegel depicts the folly of the former, the Manhattan Institute’s Steve Malanga portrays the financial foolishness of the latter. In the most recent issue of MI’s City Journal publication, Malanga wrote:
“I’ve been involved in five divestments for our fund,” CalSTRS [California State Teachers’ Retirement System] chief investment officer Chris Ailman told his board earlier this year. “All five of them we’ve lost money, and all five of them have not brought about social change.”
For several decades, California’s pension funds have been subjected to a dizzying array of social-investment prerogatives. A 2011 Mercer Consulting study found that CalPERS [California Public Employees Retirement System] investment officials had to follow 111 different investment priorities relating to the environment, social conditions, and corporate governance. Many of these directives have proven calamitous to the two funds’ bottom lines. Eight years after CalSTRS and CalPERS divested their portfolios of tobacco stocks in 2000, a study found that the move cost CalSTRS $1 billion and CalPERS about $750 million in foregone profits. CalPERS also ditched investments in developing countries such as Thailand and India, because board members objected to labor standards in these countries. A 2007 report found that avoiding investments in developing counties cost CalPERS about $400 million.
Divestment advocates, no strangers to moral preening, claim that they’re employing the same tactics that hastened the end to apartheid in South Africa. Malanga, however, states:
The analogy between South Africa under Apartheid and fossil-fuel companies is strained, to say the least. The world was able to isolate South Africa because few major industrialized countries depended heavily on its economy. But fossil fuels are pervasive throughout the world, and the energy they produce drives the economies of most nations. More than 80 percent of the energy the world uses currently comes from fossil fuels, while only 9 percent comes from alternative energy sources (including nuclear). Even under the most optimistic scenarios, it will be decades before countries can end their reliance on fossil fuels, so the demand for them, and the profits they generate, will attract investors around the world, regardless of whether endowments and government-controlled funds divest of their shares in these firms.
And follows with this:
More important in the coming years will be technological advances that allow cleaner energy from fossil fuels. The rapid shift in the United States to natural gas—which emits nearly 50 percent less carbon dioxide than coal when burned—has already helped the United States cut its greenhouse gas emissions by 10 percent since 2005. Meanwhile, some 1 billion poor around the world await electricity, and coal will likely fire their dreams.
Does it really need to be repeated after this? It’s clear that what really works in the best interests of the world’s poor and impoverished – and the rest of us, including investors – is cheap, plentiful and reliable fossil fuels.