Transition Plan Analysis (TPA) Level 2

Despite differing views on climate change, it cannot escape anyone’s attention that the climate crisis has triggered a technology revolution in the way we create energy which poses an existential threat to companies which rely on the outgoing technology for a substantial part of their earnings. Additionally, while you may or may not agree with the climate science, others do and are introducing policy that again threatens demand/revenues.

This note attempts to deconstruct the risk to Exxon’s revenue/earnings into these two threats – energy transition and policy response. It also reviews management’s reaction to these.

The note discusses:

  • Exxon’s risk to the reduction of demand for its product due to consumer choices
  • The risk generated by mismatch between demand & supply durations.
  • The ability for Exxon’s legacy business to survive in a lower product demand environment.
  • The potential for its low-carbon strategy to offset the loss of market cap (share price) that will happen as the demand for its legacy products inevitably shrink.

Carbon Tracker has a long tradition in converting climate science into financial risk through the function of stranded assets. However, stranded assets are the symptom of the disease that a company catches when demand for their product falls faster than the company expects.

Investors have an extra problem in the fact that the price of the stock or bond they own tends to move even faster, just ask investors in Blockbuster how that can work out. Investing is ultimately pricing the likelihood of future returns; this note is aimed at helping the people who must do this for Exxon because it is their job.

For any questions on the material within, feel free to email Neil at