Case 1: “Oil giant Exxon Mobil suffered its first annual loss in decades last year as the pandemic prompted energy use to plunge. The firm lost $22.4bn as energy prices dropped – at one point falling below zero. The downturn forced the company to make drastic cuts to its workforce and investment plans”.
The pandemic has taken a massive toll on Big Oil as demand has all but dried up, with global travel still largely restricted and swaths of ex-commuters working from home. Energy, according to The Wall Street Journal, was the worst-performing sector in the S&P 500 last year. Exxon and BP both reported annual losses of $22 billion and $18.1 billion, respectively, and for Exxon it was the fourth consecutive loss for the first time in modern history. Exxon Mobil is investing $3 billion over the next five years in efforts to lower emissions. The CEOs of Exxon Mobil and Chevron spoke last year about combining into one oil giant, reports The Wall Street Journal, citing anonymous sources. The market value of a combined Exxon/ Chevron could surpass $350 billion. (Innews)
Read further for Case 2 on the same site: “Drugs giant Pfizer has said it expects $15bn of sales this year of the coronavirus vaccine it developed with German firm BioNTech. The vaccine was one of the first to be authorised for use by countries including the UK and the US. The vaccine sales represent a quarter of its expected revenue for this year.”
Two companies, two sectors and two different scenarios. The Covid-19 pandemic may provide a thesis on what portfolio managers may have to do when balancing risks. This world is becoming stochastic and that state may be the steady state if the climate change worst case model comes to pass.
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That health insurance companies declared massive profit is an irony in a time when the world experienced one of the most challenging healthcare issues in decades. Why did they make money? Lockdowns and restrictions froze hospital visits and with limited hospitalizations, those elective surgeries which cost so much were waived, pushing insurers to keep their premiums. Those premiums give you the massive profits.
When you look at the different outcomes from Exxon and Pfizer, you will understand the challenge ahead if the projected climate change paralysis happens. Yes, there could be structural redesigns which can change the economic architectures of nations. WIth no resilience, humans will suffer. Africa needs to invest to acquire and deepen its resilience to such shocks. They could be existential.
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