Climate Rants and the World’s ‘Richest’ Companies

I like to write about climate change. A lot. It’s this Big Topic of the 21st century; it’s what my millennial generation endlessly agonizes over. It’s on our minds, in one form or another, pretty much always.

But it’s also an iconic example of trade-offs, that annoying topic that economists love. How so? Well, economists study trade-offs. Choice. Giving up one thing in exchange for another. And those with at least some training in economics — as those schooled in physics, in engineering, in evolutionary biology or many ecologic fields — are pretty good at thinking one step further. At considering complex dynamic systems with many moving parts.

Climate scientists, not always so.

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I recently listened to an interview at Peter McCormack’s show Defiance with Katharine Hayhoe, atmospheric scientist at Texas Tech. Among the many things she said that sparked my interest, one was on scientific knowledge and specialization:

“most of us don’t understand [the science] to begin with. I mean if you ask me to explain the basis of GMOs for example, I would struggle to do that too. And that’s because we are all cognitive misers. So not since the days of Francis Bacon has one human brain been able to contain the essential information about every field that we have and probably not even him either.”

Absolutely right! The sum total of human knowledge is much too vast for anyone to be an expert in more than a tiny sliver of everything there is to know.

But that doesn’t mean we should never bring what we know to topics outside our field. Despite their erudite hats, climate scientists are curiously adept at replacing those hats with economic hats, energy hats, or forecasting hats — all in the name of impacting policy, and changing hearts and minds.

When pushed, they revert to their impressive scientific credentials: “the science” says so.

I don’t have any training in atmospheric sciences. I haven’t done any scientific climate research. To most people, that disqualifies me from having an opinion on climate change. Odd, I keep thinking, as a lack of basic economics never disqualifies anyone from having an opinion about what the economy is doing, what trade policies should be enacted, how the tax code should change for this or that purpose, or how to make the rich pay. Or, you know, how energy production could (and should) be improved.

In a sense, they’re also right: I don’t know much about the scientific workings of our atmosphere, and just like Hayhoe couldn’t recount the pros and cons of GMOs without relying on those who could, I couldn’t comment on whether glaciers are receding or the oceans are heating up without relying on scientists who actually know their stuff.

Here’s what that means: my outsider-perspective forces me to take factual claims from the scientists themselves. Whenever I argue about carbon taxes, electricity generation, deforestation, or Icelandic glaciers, the factual basis for those arguments must come from middle-of-the-road consensus stuff — not some far-out, long-tail, crisis hypothetical that I can defend only because of my intricate familiarity with the models, assumptions, and methods applied.

Sometimes that makes me misinterpret the meaning of a topic (for which I happily take corrections!). But usually it lets me put things into proper perspectives.

I’ll hold off on the juicier climate change topics in Hayhoe’s interview for another time, and comment on something she said much closer to my expertise: I do actually know a thing or two about financial markets and their metrics.

And here’s a shocking revelation to professor Hayhoe as well as to my more conspiratorially-minded climate friends: fossil fuel companies are not the richest and most powerful corporations on the planet.

Yet, that’s what Hayhoe claimed on multiple occasions, but she used the word “richest” to say that. Strange, I thought, since there is no precise metric that makes a company “rich.” And it’s altogether fishy to call corporations rich, as they are merely legal entities for their shareholders: individuals can be rich or poor; corporations not so much. A “rich” company has no precise meaning. Are you talking about market capitalization for a listed company? Profits? Margins? Total assets? Net assets? Revenue? When you say “rich company,” nobody in the weeds knows what you’re talking about.

Besides, companies only have power insofar as consumers give them power by purchasing their products. (Yes, yes, this is complicated by the presence of governments and regulations and subsidies and taxes).

At one point Hayhoe mentioned that she found this “list” of the richest companies on earth at Wikipedia. Aha, finally something to work with. Specifically, she said:

you have Walmart at the top, and then the rest of the top 10 are all companies that made their money off of fossil fuels whether digging them up, processing them, selling them or selling things that burn them, cars.

After some searching, I’m pretty sure she means this list (‘List of Largest Companies by Revenue’) where — like she said — the top-10 has six oil & gas companies, two car/truck companies, and the Chinese electric grid, all topped by Walmart:

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Source: Fortune Global 500, via Wikipedia.

Ah, so richest meant 2018 revenues. *Sigh*

Let’s set aside the little pesky detail that most of these companies are big by virtue of state-sponsorship — not market supremacy, or efficiency, or some intrinsic power-through-fossil-fuels measure.

More importantly, how does this stack up with a more all-round, best practice consideration?

Good thing, then, that Forbes just released their Global 2000 list for 2020, ranking companies according to four criteria: Revenue, Profits, (Total) Assets, and Market Cap. They sort the 2,000 largest companies in each category and give them a ranked score (some 4,000 companies globally were included). Equal-weighting the metrics, they generate the final list of 2,000 companies.

Using four metrics rather than one gives a much better picture of the largest (or ‘richest’) companies on the planet.

Unfortunately for Hayhoe, most of the fossil fuel-based companies drop out from the top-10.

Sinopec, the Chinese refinery giant, drops from number two on the 2018 Wikipedia list to #60 on the Forbes list — poor profitability and surprisingly low market cap are to blame. Walmart, the uncontested winner in the Wikipedia revenue list, drops out not just from top-10 but all the way to #19. Unsurprisingly, as the cut-throat, low-margin business of (discount) supermarkets tend to have relatively low profits. Besides, being a churn rather than capital-intensive company, Walmart scores rather low on the asset metric too.

Aside from the Saudi oil company Aramco — whose 2019 scandalous IPO of a tiny sliver of shares vastly inflates its market cap — there are no fossil fuel companies in the top-10. Toyota is pushed to #11; ExxonMobil to #13. Volkswagen is #23 and Shell clocks in at a modest #21.

What, then, are the largest corporations in the world according to Forbes 4-metric composite list?

Banks, banks, banks, insurance companies — and Apple (which Hayhoe ironically praised in the interview for supposedly running its operations on 100% renewable energy). No wonder, really, when assets are taken into account as banks can expand their balance sheets in ways non-financial firms usually can’t — and have no reason to.

But even if I exclude banks (and Warren Buffet’s Berkshire Hathaway, which has sizable positions in most large American banks and wholly-owned insurance companies like General Re and Geico), I end up with a top-10 list that’s mostly tech: Aramco (with its inflated market cap), followed by Apple, AT&T, Toyota, Alphabet (Google), Exxon, Microsoft, Samsung, Walmart and Verizon. Just outside the top-10 sits Shell on #11 and Amazon on #12.

You can of course use terms differently and define them in whichever way you like, but it’s wholly unscientific for Hayhoe to say that fossil-fuel firms are the richest companies in the world. The list she relies on is neither the best, nor the latest: it only counts revenue, and it’s heavily dominated by Chinese (and Saudi) state-supported firms.

Besides, investors who have held oil & gas companies over the last 10-15 years have seen dismal performance. Just for fun, I wondered how much a $100 investment in ExxonMobil at the start of 2005 would be worth today, 15-and-a-half years later? If the company counts as the sixth, eighth, or thirteenth ‘richest’ company in the world, their investors ought to fare pretty well, right?

Not so. With dividends reinvested, the value of $100 invested in 2005 would be worth…$104.37 today.

During this time, the Fed’s price inflation metric has increased by 28.4%, meaning that the real total return for someone holding ExxonMobil stock between 2005 and 2020 was -19%. At the same time, the S&P 500 stock index returned — with dividends reinvested — 259% (180% adjusted for inflation).

If fossil fuel companies like XOM, per Hayhoe, are the ‘richest’ companies around, their stockholders have most certainly not experienced that in recent decades.

Lastly, if she means ‘richest’ to have some kind of bearing on climate policy debates in the U.S. or the West more generally — the ‘richest’ list was discussed in the context of spreading misinformation and using PR to discredit climate change research — it’s wholly unclear to me that Chinese, Saudi, Iranian, and Russian state-financed companies have much to do with that.

Strange indeed.

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Writer, editor, and student of money past and present. Here: mostly off-topic stories, personal finance-musings, worldly observations and Reykjavík reflections.

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