Big Oil in the Green Revolution: Can Exxon Mobil Be a Sustainable Investment?

lovely | July 11, 2024

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Imagine a world where the biggest names in fossil fuels are also leading the charge towards renewable energy. It might seem like an oxymoron, but that’s the tightrope walk Exxon Mobil (XOM) is attempting. This article explores how this energy giant is navigating the transition to a greener future, and whether it can be a viable investment for sustainability-focused portfolios like the Hennessy Energy Transition Fund.

For decades, Big Oil has been synonymous with environmental resistance. However, the tide is turning. Public pressure and the economic realities of climate change are forcing these companies to adapt. While complete divestment from fossil fuels remains a possibility, some investors believe collaboration with these established players might be a more pragmatic approach.

The Hennessy Energy Transition Fund exemplifies this strategy. Exxon Mobil surprisingly holds the top spot in their portfolio, alongside other oil majors like ConocoPhillips (COP) and Chevron (CVX). Portfolio manager Ben Cook explains this seemingly contradictory choice by highlighting Exxon’s pursuit of “practical pathways to transition.” This includes investments in carbon capture and storage technology, as well as lithium extraction for electric vehicle batteries.

Cook argues that Exxon’s commitment to renewables is more measured than some of its peers. Unlike companies scrambling to jump on the bandwagon, Exxon maintains a “shareholder-focused” approach. This translates to projects with a higher likelihood of delivering consistent returns for investors during the energy transition.

Exxon’s size also offers unique advantages. Their “deep pockets” ensure renewable initiatives aren’t waylaid by political winds like tariffs or tax credits, which can cripple smaller players. The company’s long-term commitment to lithium, even in the face of price fluctuations, further demonstrates this stability.

For Cook, Exxon’s “integrated business model” is another key selling point. When oil prices dip, profits from other sectors can help offset the losses, leading to more consistent financial performance. Additionally, Exxon’s vast resources allow them to pursue diverse renewable ventures. Their total capital expenditure in 2023 was a staggering $23 billion, making investments in green energy projects mere “rounding errors” in comparison.

Environmental, Social, and Governance (ESG) investing has become a powerful force in the financial world. However, the lack of standardized criteria makes defining a truly “sustainable” company a challenge. For instance, some ESG funds might include Philip Morris International (PM) due to their reduced-risk tobacco products, while others may exclude them entirely. This ambiguity allows companies like Exxon to potentially fall under the ESG umbrella.

Cook believes the growing emphasis on ESG could incentivize Exxon to further invest in green initiatives. Attracting investors who prioritize clean energy is crucial for Exxon’s long-term success, and their pursuit of low-carbon solutions positions them well to do so.

Critics may scoff at this notion, particularly with the urgency of climate change. But as the saying goes, a journey of a thousand miles begins with a single step. While baby steps might not be enough to appease everyone, Exxon’s efforts could represent a turning point for the entire industry.