Why ExxonMobil’s switch to clean energy should spark the interest of ESG investors

Dividend collectors and low value fanatics love it ExxonMobil (NYSE: XOM), an essential holding company for investors who have been concerned about security for generations. Still, today’s sustainability-conscious investors might not be too impressed with Exxon’s track record, given its staggering carbon output over the past decades. Still, skeptics may need to take a second look at ExxonMobil in 2021. The company is taking notable steps to make changes – if not fine.

A turbulent past

It’s perfectly understandable that today’s investors – and the general public – are wary of ExxonMobil. According to a lawsuit by Minnesota Attorney General Keith Ellison, an internal company document from 1979 acknowledged that “the current trend in fossil fuel consumption will have dramatic effects before the year 2050.” As Ellison’s case documents in detail, Exxon has known for decades that climate change is real and dangerous, while publicly downplaying the threat.

While we haven’t yet seen an outright excuse from Exxon, perhaps actions can speak louder than words. In particular, the company is entering the clean energy space – although this is most likely in the interest of its own future financial gains.

Image source: Getty Images.

Alignment with the net-zero target

Critics might not like to hear this, but ExxonMobil has made great strides in reducing its carbon footprint – even before the Biden administration expressed its intention to achieve net zero carbon emissions by 2050.

For example, since 2000, ExxonMobil has reduced its own methane emissions by 15% and eliminated (or at least avoided from operations) approximately 520 million metric tonnes of greenhouse gas emissions.

This is just the start for ExxonMobil. The company’s majority-owned subsidiary, Imperial Oil Ltd., plans to transform vegetable oil into renewable diesel at its Strathcona refinery in Edmonton, Canada

In this ambitious cleaner energy project, Imperial is expected to produce approximately 20,000 barrels per day of renewable diesel, which could reduce emissions in Canada’s transportation sector by approximately 3 million metric tonnes per year. The project is also expected to create around 600 direct construction jobs – a good bonus for the local economy.

Play catch-up

Of course, the imperial project still produces pollution; it’s more about reduction than elimination at this point, unfortunately. As a suddenly more attentive energy supplier, ExxonMobil has yet to catch up, especially compared to its peers abroad:

  • Royal Dutch Shell (NYSE: RDS.A)(NYSE: RDS.B) has pledged to reduce its oil production by 1 to 2% per year.
  • PA (NYSE: BP) plans to increase its production of renewable energy by 20 times, while reducing its oil production by 40% by 2030.
  • TotalEnergies (NYSE: TTE) is preparing to decree a “reduction of at least 60% in the average carbon intensity of energy products used in the world by Total customers by 2050, with intermediate levels of 15% by 2030 and 35% by 2040 ”.

ExxonMobil is the largest energy company in the United States, and other national companies are expected to follow suit. Therefore, Exxon should take the first step and set specific and ambitious goals to reduce its production of fossil fuels beyond what the Biden administration advocates.

Ambition, if not contrition

ExxonMobil isn’t exactly atoning for the sins of the past, but at least the company is putting (some of) its money where its proverbial mouth is.

A new business segment, ExxonMobil Low Carbon Solutions, is designed to commercialize the company’s portfolio of low carbon technologies. This is part of Exxon’s plans to invest $ 3 billion in “low-emission” energy solutions – so not necessarily zero-emissions – until 2025.

With Low Carbon Solutions, ExxonMobil is assessing investment opportunities in carbon capture and storage (CCS), which involves capturing carbon dioxide emissions and reusing or storing them so that they do not enter in the air. These include:

  • In Singapore, a CCS hub concept to capture, transport and sustainably store the CO2 generated by industrial activity in the Asia-Pacific region
  • In the Netherlands, a project to collect CO2 emissions from industrial sources and transport them by pipeline to depleted offshore gas fields in the North Sea
  • Opportunities to add additional capture capacity in the Qatar region, where ExxonMobil already has several existing joint ventures with Qatar Petroleum
  • Several CCS projects along the US Gulf Coast, including a CCS hub concept in Southeast Texas

These projects and / or others under consideration would complement ExxonMobil’s current carbon capture capacity in the United States, Australia and Qatar, which totals approximately 9 million metric tonnes per year. For what it’s worth, that’s the equivalent of planting 150 million trees each year.

Despite the abundance of ESG-friendly buzzwords in ExxonMobil’s web copy, it’s understandable that investors are skeptical. But you don’t have to forgive Exxon’s past wrongs to appreciate its transition to a more forward-looking emissions policy.

At the very least, we can see ExxonMobil as decent value, and therefore an acceptable investment from that point of view. The company’s price-to-sales ratio of 1.10 over the last 12 months of the company is certainly not objectionable, although it does not compare favorably to those of more ambitious carbon cappers like Royal Dutch Shell at 0.77 , BP at 0.43 or Total at 0.86.

Whether you feel comfortable investing in ExxonMobil shares now is a personal and financial decision. Either way, Exxon’s turnaround – gradual and flawed as it is – is at least a more enjoyable new chapter in its history.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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