Can Big Oil afford to go green?

Why energy companies that have ‘de-carbonized’ may have an edge in today’s oil glut

Andrew Willis 21 April, 2020 | 1:41AM
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This video is part of our Earth Week special report

Andrew Willis: Oil prices sank over the past few weeks in part because of a lack of demand due to COVID-19, and until recently, an unwillingness from OPEC to cut supply. With oil companies suffering, you can’t help but wonder whether they’ll be able to afford their role in keeping the skies as blue as we’ve seen recently.

When it comes to mitigating ESG risks, Jonathon Smith at Sustainalytics says that those companies that got the headstart on de-carbonizing their revenue channels before COVID-19 are better positioned to fulfill greenhouse gas emission targets and align with United Nations Sustainable Development Goals.

He points out that cash-constrained and volatile environments aren’t conducive to the development and deployment of strategic low-carbon initiatives, and we may see firms “hold off” on these commitments in the near-term. However, energy companies that already established low-carbon revenue streams are better positioned to restart in a way that satisfies stakeholders, and also have books that are better off today. One such company is five-star energy company, Total (TOT).

It’s diversified, with refining and chemicals businesses accounting for two-thirds of its revenues in 2018. It then spent half a billion U.S. dollars investing in gas, and renewable energy projects in that year alone. And even after its share price recovered around the OPEC agreement, we still think it’s significantly undervalued.

For Morningstar, I’m Andrew Willis.

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About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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