Jonathan Salem Baskin: The Market Isn’t Interested In Investing In Oil

Our thanks to Jonathan Salem Baskin for allowing us to reprint his column about the market-based move away from fossil fuel, originally published on Medium.

As the worldwide debate about climate change rages nowhere except in certain American electoral districts, the market is busy making air pollution less profitable.

ExxonMobil will be more transparent on “energy demand sensitivities” resulting from increases in temperature, and what it’s doing to prepare for a lower-carbon future, joining almost all of its competitors. Norway’s sovereign wealth fund is contemplating selling its shares in oil companies because they appear vulnerable to a “permanent drop in oil prices” (keep in mind that the money in its fund came in large part from developing the country’s oil reserves). The World Bank will stop investing in oil and gas exploration in 2019.

So much for debate.

Investors might bring their emotions to markets, but value is determined by price, not passion. Transactions with real consequences quickly disabuse people of their biases (if not, they risk being on the losing side of the next trade). Belief is a detriment to effective investing, as are “facts” that aren’t borne out by objective reality.

That’s not to say that markets are always efficient or accurate. The current valuations of tech companies that have no customers or profits are wildly too high. Venture capital skews cash and attention toward new business propositions that are idiotic, in hopes that one in a thousand will prove itself sane enough to let its initial investors cash out, so it’s more a gambling crap shoot than functioning market.

Many businesses are undervalued because they don’t know how to sell themselves to opinion-makers. Much of the infrastructure companies that run the world probably fall into this category; just think of any industry in which you’ve read about some disruptive tech startup, and not about the immense innovation going on behind the closely guarded doors of established businesses.

The difference between financial markets and markets for ideas is that the former has to return, at some point, to the lodestone of legal tender currency, while the latter has no such guardrail; this is especially true on topics such as climate change, to which certain parties bring their own sets of facts and derived truths that are all but immune to any challenge.

Markets recover, primarily by recognizing true costs and benefits, even as the most argent opponents in arguments resign themselves to eternal, principled detente.

So it’s interesting that not only is the market lowering its valuation of fossil fuels, but oil companies themselves see the writing on the wall. Pollution is becoming a not-so-profitable industry.

When it comes to money, there’s no debate.

Baskin is president of Arcadia Communications Lab, a global collaborative solely focused on helping established businesses get value from communicating about innovation.

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