Big Oil’s Bad Day in the Context of Portfolio Management

By: Garvin Jabusch

I was impressed this week by Graham Sinclair’s thoughtful piece “Why 26 May 2021 Matters,” looking at “Big Oil’s Bad, Bad Day” with his perspective as a South African whose formative years occurred during the Nelson Mandela era. Graham’s observations of the parallels between Mandela’s release and oil’s recent reckoning resonate: “Despite intransigence wrapped in fear-stoking propaganda (not too dissimilar to Exxon on climate pollution), decades of pressure via moral, legal and financial arguments finally had delivered history. It was disorientating and hopeful. It also did not instantly fix the many challenges then, and those yet to come.”

And the calling of big oil to account is indeed meaningful and a signal that the long-predicted transition of the global economy towards something more sustainable is finally gaining enough momentum that decarbonization, electrification, and dematerialization may soon become material enough to have impact on our lives and futures. But Graham’s parallel holds: this is not an “instant fix;” far from it. These recent events are not a fix for the climate crisis, and they are not a fix for asset managers (green or not) hoping for better returns or sustainability cred.

Potential Scenarios

Let’s take a minute to war-game possible scenarios for oil majors as a group. In the most likely near-to-medium-term scenario, they keep doing what they’re doing now, business as usual, but with efforts at decarbonization that are de minimus compared to their overall expenditures and balance sheets, such as CCS or some form of hydrogen or other liquid fuels technology. At a time when the world is either at or near peak oil demand, this business-as-usual strategy does not bode well for company growth, much less for rapid growth.

In another scenario, one or more of these oil majors decides to make a sincere break with the past and pursue a radical transition away from oil and towards electrification. Awesome, but extremely difficult and costly, and involving spinning off or outright stranding of substantially their entire book values of fixed assets and proven reserves. Again, not a bright future for revenue or earnings growth from a stock picker’s point of view.

In a third scenario, oil production continues to grow. Some are counting on this: according to the Financial Times, “Exxon is pledging to increase oil and gas production by more than 1m b/d from the current 4m b/d by 2025.” In this case, we would be likely to see fair profitability and ability to maintain dividends, and all the things we associated with oil companies in the past. This is sort of the best-case scenario from a stock valuation point of view, but, obviously, from a climate impact and long-term economic point of view, it is a non-starter as it would drive the world closer to collapse. So, this third scenario too is terrible for the stock picker, because climate collapse equals no economy at all, and therefore no retained value in really any equities portfolio.

All in, Green Alpha doesn’t see a clear path forward for oil majors (or any firms primarily exposed to fossil fuels) to provide competitive investment returns, even if they take up the challenge of decarbonization in good faith.


So Graham is right, this was a watershed week. The message that we have to do something about the climate crisis, starting by taming the main culprits of that crisis, has never been stronger. But that doesn’t make oil majors part of the solution to the climate crisis, and it doesn’t mean they are reasonable candidates for ESG or impact-oriented investment portfolios.

As always, the strongest signal that asset managers can send is simply to decline to own these unpromising assets, and so let the market know that the causes of the climate crisis essentially have no long-term value, and that they therefore make terrible long-term investments. I don’t think Graham will disagree.


Green Alpha Advisors does not hold any company or client investments in ExxonMobil (ticker XOM). Nothing in this blog should be construed to be individualized investment, tax, or other financial advice. Please read important disclosures here: