As I was researching the prospects of building a clean tech fund in 2005, I recall looking at Exxon’s stock price, versus the Exxon Valdez oil spill. I wanted to see if the most negative environmental event ever (oil, beyond Bhopal) could move a stock price. It did not. While this most significant environmental disaster in history had little effect on the capital value of the corporation a year later, it was a seminal event, pointing to the massive risks of oil extraction. Valdez was followed 21 years later by BP’s Deepwater Horizon disaster. While BP stock initially corrected, it later recovered, supported by fundamentals reflecting solid global oil demand, revenue growth, and, more internally, healthy returns on capital deployed for the large exploration and production projects.
Today, as President Trump considers breaking from global consensus on climate change policy, Exxon shareholders successfully demanded that Exxon change its ways, as investors passed a climate measure, bypassing board opposition, that climate change must be taken into its business accord. Not only did the resolution pass, it cleared a 62% threshold. Oil is an important energy source, but technological disruption is nipping at its heels. Marginal demand is slackened, and that drives price. Today, oil company fundamentals do not reflect the positive financial metrics post Deepwater Horizon. Take a look at Exxon. Take any metric, and profitability is in decline, reflecting not just oil demand, but longer-term disruption – the market discounts change.
We will still need oil as our global demographic and economic profile favors the emerging markets, but we will be using less of it. This is economics and technological disruption at work. However, today’s Exxon vote points to something else, that I argue will cause clean energy adoption to shift rapidly and suddenly….public sentiment. On the day our President may back away from climate progress, investors, who reflect public sentiment, voted for it.