Super majors’ share prices were materially depressed throughout 2020 as their businesses were buffeted by price wars, over supply, weak refining margins and a plummet in demand caused by COVID-19. Against this backdrop, European majors announced ambitions to curb their carbon emissions and to target net zero by 2050 in line with the aims of the Paris Climate Agreement, partly influenced by pressure from investors with ESG agendas.
Nostradamus Consulting (Nostradamus), the business-to-business insights specialist, was repeatedly asked the same question by energy majors: Why is our share price still materially depressed despite receiving warm endorsement from investors on our ‘greening’ strategy?
In December 2020, Nostradamus initiated a proprietary research program to explore this topic amongst its community of 2,700+ global energy stakeholders, including over 250 energy investors.
To frame the study, Nostradamus accessed the materiality map of the Sustainability Accounting Standards Board (SASB), which identifies 13 Environmental (E), Social (S) and Governance (G) issues as being of importance for integrated energy companies. Working with its data partner Mettle, Nostradamus ran an analysis of the commentary of its energy stakeholders through a bespoke, analytical lens designed for evaluating E, S and G issues. Through this ESG lens, Nostradamus identified 7 additional issues as being relevant over and above SASB.
Having established 20 key sustainability issues, Nostradamus examined them against the commentary of its 250 energy investors in its stakeholder community over the previous 12 months from November 2020. Using sentiment analysis and natural language processing, Nostradamus evaluated 6 super majors’ performances against each of the 20 sustainability issues from the perspective of investors.
The highlights of the study indicated the following:
- Volume of investor conversation about energy majors and sentiment towards them varied considerably from player to player.
- ESG issues most commented on by energy investors were GHG Emissions, Management of Legal and Regulatory Environment, Energy Management, Labour Practices, Physical Impact on Climate Change and Business Ethics.
- Exxon Mobil, Shell and Chevron generated most investor conversation on these big issues, generating mostly negative sentiment.
- Total generated the most positive sentiment from energy investors on overall ESG issues, Equinor on the most important ESG issues; bp and Exxon Mobil generated least investor positivity.
Competitive variations in volume and sentiment of investor narrative
At an overall ESG level, Shell generated the most investor commentary, averaging around 9,000 a month between November 2019 and November 2020. Chevron, Total and Exxon followed, averaging plus or minus 5,000 per month and Equinor generated least, at around 900 per month.
When evaluating investor sentiment towards the energy majors on an overall ESG basis, Total recorded most positivity at 7% in November 2020, with Equinor in second place with 0% or neutral positivity and Exxon Mobil and bp with the least positivity at -21% and -24% respectively.
In terms, of the E, S and G clusters of issues, Governance generated the most investor narrative, averaging approximately 3,000 conversations per month per company, followed by Environment narrative averaging over 1,000 per month per company, with Social narrative trailing with circa 700 investor comments per month per company.
Which ESG issues are most important to investors?
Examining the volumes of investor narrative across all 20 ESG issues, six issues generated significantly greater volumes than the rest.
Whilst high volume of narrative does not indicate positivity or negativity, it does indicate the scale of investor reaction to company activity on the particular issue and therefore the issue’s perceived importance.
The ESG issues most commented on by investors were:
- Business ethics (Governance)
- Physical impact on climate change (Governance)
- Greenhouse gas emissions (Environment)
- Energy management (Environment)
- Labor practices (Social)
- Management of the legal and regulatory environment (Governance)
Having ranked all 20 ESG issues of most importance to energy investors, Nostradamus then examined investor sentiment towards the super majors’ collective performance against each issue. Of all ESG issues examined, two of the most important issues were in the top 5 most favorably regarded by investors, GHG emissions and Energy management. This indicates that investors feel majors are doing a pretty good job with their activities on the most important Environmental issues. Conversely, the other 4 most important issues to investors received the least favorable sentiment from them. On the face of it, this indicates that super majors should extend their ESG focus beyond Environmental issues and pay greater attention on improving their actions on the important Governance and Social issues.
How do the super majors perform on the ESG issues of most importance?
Examining investor sentiment on each of the 20 ESG issues by company, Equinor performs best in 2020, recording positive scores on 11 issues (versus 7 in 2019), followed by Total with positive scores on 10 issues (versus 17 in 2019). The two companies appear to be on opposite trajectories in terms of investor sentiment. bp and Exxon Mobil take fifth and sixth places with bp noting positive scores on 1 of the 20 issues (Product design and lifecycle management) versus 3 issues in 2019. Exxon Mobil recorded negative investor sentiment on all 20 ESG issues in 2020, versus the 4 issues on which it recorded positive investor sentiment 12 months earlier.
Examining further, when Nostradamus focused on the 6 most important ESG issues to energy investors, there were only 3 instances in 2020 where super majors have recorded improved investor sentiment. This is perhaps a reflection of the turbulence of the past 12 months for the sector as a whole. The incidences of improved performance were:
- Energy management (Equinor 27% versus 12% in 2019)
- Physical impact on climate change (Equinor 10% versus -10 in 2019)
- Management of the legal and regulatory environment (Total -10% versus -18% in 2019).
In terms of competitive positioning on the 6 most important ESG issues for investors, Equinor and Total take the top 2 positions, the U.S. majors occupy the middle ground, with Shell and bp trailing.
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