Shell, Exxon lead US oil industry on environmental performance

Royal Dutch/Shell and Exxon surprisingly emerged as the two top environmental performers among a competitive set of 13 large US oil and gas stocks, according to a new study of the oil and gas industry by Innovest Strategic Value Advisors Inc.

The report, “The Petroleum Industry – Hidden Risks and Value Potential for Strategic Investors“, calls into serious question the traditional industry view of the environment as a pure cost centre, and presents a powerful argument in support of the linkages between superior environmental performance and superior competitiveness and profitability. In doing so, the report taps into a new source of shareholder value for mainstream investors, namely, corporate eco-efficiency.

The report’s central findings provide a stark wake-up call for companies and investors alike – top environmental performers outperformed their industry rivals by 17% over the course of 1998. Variances as great as 500% were detected in the environmental risk profiles of companies regarded by mainstream Wall Street analysts and rating agencies as virtually identical credit and investment risks.

Both Shell and Exxon scored highly in a 25-point analysis of environmental management capabilities, as well as in their capacity to profit from environmentally-driven business opportunities. Shell’s $500 million investment in renewables and Exxon’s leading role with GM, Toyota and Renault in the development of low-emissions gasolines were notable plus points. On the downside, both companies continue to face extensive environmental risk exposures, although indications of outperformance, for example in oil and chemical spills (both less than half the industry average of 800,000 Lbs per unit sales), were evident.

The report also fires a timely shot over the bows of the companies themselves, by exposing manifest disparities in corporate risk exposure, management capability and strategic positioning. With the American Petroleum Institute, the World Energy Council and other influential organizations repeatedly citing environmental matters as being among the most pressing of all issues faced by the oil and gas sector, it is clear that tomorrow’s winners and losers will be increasingly defined by environmentally-driven risks and opportunities.

The report sheds light on a critical yet seldom-seen side of the industry. It examines, amongst other things:

  • the full extent of the financial minefield created by looming US and international environmental regulations, policy developments and related industry sustainability issues (for example, the estimated $40 billion required for offshore facility decommissioning)
  • the internal environmental management dynamics of the U.S.’ top oil and gas companies
  • how, through Innovest’s proprietary EcoVALUE ’21 analytical platform, the various environmental risk and profitability drivers are translated into financially-meaningful terms.
  • how leading companies are positioning themselves in natural gas, renewables, alternative fuels, emissions trading and technological innovation.

The report’s implications for investors and industrial companies are clear – investor returns can be substantially improved by investing in companies with superior eco-efficiency. “Environmentally-driven attributes can and often do contribute directly to a company’s competitive advantage in the marketplace”, said Dr Martin Whittaker, the report’s principal author and a senior analyst at Innovest.
“Going forward, the distinction between top and bottom environmental performers will become even more important for investors as environmental regulations, public concerns about the environment and market demands for more environmentally responsible products and corporate policies continue to increase.”

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