Do you remember when Exxon was the world’s largest publicly listed company? Can you imagine how your stock portfolio would have done if you’d sold it all and invested in AAPL? Or AMZN? Or MSFT? Those companies now have market caps of $1.5 T. Exxon was briefly over $500 B in 2007. It’s now $187 B. And thus begins our discussion on ESG.

Commodity businesses rely on a global price driven by all sorts of supply-demand factors and when supply is high (and constrained artificially), its hard to have a transformative hockey stick CF profile (unlike what those other companies have done since the Great Recession). It’s also why all the ESG discussions in the world don’t matter. The rate of return of the average full cycle project is low, and without hedging, it is variable and exposed to huge swings.

So when CVX and XOM reported Q2 earnings today, they showed what the business looks when you can’t control price. And they lost money. They lost it in upstream. They lost it in refining. And that’s without writing down the value of assets. Now compare the earnings to AAPL.

So do we have an ESG problem? No. But is Governance putting boards in place that can transform a business and make money? Also no.  And that’s why the industry has a “G” problem and no investors.

#hottakeoftheday