In response to Big Daddy Oil

A recent article in Felix, “Big Daddy Oil outearns Apple and Google, wants more”, reported on records seen by the Financial Times which assert that the state-owned oil company Saudi Aramco has a greater net income than any other company worldwide. Since many of the graduates of this university, and readers of Felix, will in the future become decision makers in consultancies and international organizations, I urge you to take a perspective appropriate for the 21st century. Reports on companies must include a consideration of the reliance on natural capital and environmental accountability. Because until recently, natural capital could be treated as infinite, and environmental feedbacks on the economy negligible, economic analyses traditionally ignore these factors. However, in light of scientific consensus that man-made climate change is having ramifications on both the natural and the man-made worlds already, only by correctly quantifying natural capital and environmental feedbacks will financial reports be of value in the 21st century. According to the Carbon Accountability Institute Saudi Aramco is responsible for 3.4% of cumulative global man-made greenhouse gas emissions since 1885.

It is disappointing to find an article in a student publication presenting a favourable analysis of an oil corporation while neglecting any consideration of environmental and social values, or the fact that its primary product is a finite natural resource with detrimental environmental impacts. These factors will strongly affect the prospects of the oil industry. Rather than talking of diversifying their portfolio to petrochemicals and renewables, investors should instead consider whether companies plan to cease oil extraction altogether in line with scientific reason. In response to questions about peak oil, the CEO of Aramco, Amin Nasser, said that “fewer and fewer of our stakeholders accept logic and facts” at a meeting of Davos in February this year arguing that “oil and gas is responsible for much of today’s economic growth, and indeed future growth”. However, the premise economic growth being of value to society is put rather to question when this economic growth is in fact causing loss of human life and the eradication highly populated areas of coastal land as a result of increased greenhouse gas emissions.

The environmental and political dimensions of Saudi Aramco indicate its alleged financial advantage rests on shaky foundations. Even if Saudi Aramco’s records are completely honest, which I will leave to others to verify, the company has limited prospects. Other industries are moving to take over from oil in the 21st century. Tech companies, whose primary resource is information and creativity, as opposed to a limited resource derived from geographical circumstance, are the giants of this century. As is shown in a chart of the top 500 companies reproduced below, leaving aside recent speculation about Saudi Aramco, the three top tech companies: Apple, Samsung and Alphabet all have larger net incomes than Royal Dutch Shell, BP, Total or indeed any oil company.

Secondly, traditional financial analysts are too short-sighted to try quantify ecological capital (such as oil) and accountability for the environment (such as coral reef bleaching and disruption of climate systems) as a result of companies’ operations. It will take a great deal of labour in order to accurately account for these factors, but it this would be of value to society, certainly more so than creating short-sighted reports. Saudi Aramco is the largest extractor of oil and gas and despite putting up a smoke screen of small projects such as carbon capture, it has in fact increased its emissions and its oil output. Even comparing with the oil industry, the emissions of Saudi Aramco are the worst of any oil company. While other oil corporations have ceased to increase their emissions, as shown in a figure from the Climate Accountability Institute, year-on-year Aramco churns out even more into the atmosphere. Do we value this? When a company burns limited capital and produces gross increases in emissions to sustain its financial income, it is clearly not a healthy sign for investment. Despite playing lip service to renewables, the fact is that Saudi Aramco’s environmental impact has only deepened. Investing into an oil and petrochemical company in the hope that they will obviate their primary function of fossil fuel extraction is foolish. As Nasser said last year “I am losing no sleep over ‘peak oil demand’”, while BP has stated in its most recent energy outlook that “trillions of dollars of investment in oil is needed” over the next twenty years.

Though it is easy to fall into the trap of using language loaded in positive connotations for companies with large sums of money, such as “impressive” net income or “healthy” cash flows, there is nothing impressive or healthy about Saudi Aramco. The expansion of this exploitative organization is a call to arms for students and future decision makers, rather an opportunity to practice the same financial reporting that has led to loss of natural capital and degradation of the environment. Students at world-leading universities such as Imperial College have the potential to create a responsible economic system. This can only occur if we learn as students to consider the environmental perspective every time we make an analysis and every time we take a decision. Without understanding natural capital and the environmental impacts of organizations, we will value the exploitation of natural resources for short-term growth and wonder what happened to our belief in a better future.

Do you want to help create a platform for discussion on climate change at Imperial College? The Sustainability column is recruiting editors and writers for next year. If you are interested in getting involved, please fill in the form: https://tinyurl.com/y2dggnnc with your name and email to find out more. Applicants will be given free training on how to use industry-standard publishing software at a workshop in June.