Posted on 13 December 2019
By Mark Griffiths
It seems almost unbelievable. At the same time negotiators at COP25 in Madrid grappled with a response to the climate emergency facing our planet, a fossil fuel giant became the first company in the world to be worth more than $2 trillion dollars.
Oil company Saudi Aramco was listed on Riyadh’s stock exchange this week in what was the largest initial public offering (IPO) ever. While its value has since declined slightly, the company, which remains around 98.5% owned by the Saudi state, is worth more than Apple and Facebook combined, and more than twice either Alphabet (Google’s parent company) or Amazon. It is also the most profitable company in the world, spewing out a net profit of $111 billion last year.
Fossil funding and a climate emergency
How did Saudi Aramco achieve this mind-boggling IPO, in a world facing a climate crisis and under pressure to phase out fossil fuels as quickly as possible? While it received a tepid response from international investors, clearly local and regional investors were willing to pay a higher price for the company’s shares.
The oil giant was further boosted by the decision by OPEC, the cartel of 14 oil producing states, to reduce output in the first three months of 2020, driving up the oil price and helping Saudi Aramco achieve the mythical $2 trillion valuation which may yet attract more investors. But these investors would be wise to proceed with caution.
As climate science makes the need for urgent action even clearer, and the policy response becomes more decisive, oil companies like Saudi Aramco face an uncertain future.
From emissions giant to stranded asset
Saudi Aramco is the world’s biggest emitter of carbon dioxide and methane, with The Guardian
reporting that the oil company tops the list of 20 global companies that have produced 35% of all energy-related carbon dioxide and methane emissions since 1965. Aramco is the leader in this regard, producing 4.38% of the global total on its own.
Given its massive climate impact, Aramco’s IPO shows how our current system is simply getting its valuations all wrong – putting a high price on assets which will clearly be stranded in the coming decades. We know that we cannot continue to emit greenhouse gases at the current rate and we have to radically reduce such emissions – cutting them in half by 2030 – if we don’t want to overshoot the 1.5°C target in the Paris Agreement.
For the time being, the global economy remains addicted to fossil fuels. But there is also a growing, global movement for businesses to provide positive environmental and social benefits, as well as economic ones. In the long term, these companies will be valued far above those who can’t prove their sustainability credentials.
In this future, Saudi Aramco is unlikely to remain around the $2 trillion mark for very long.
Mark Griffiths is Global Leader of WWF International's Climate Business Hub. He is based in Berlin, Germany.