Saudi Aramco - A Leak In The Pipe

A leak in the pipe?

There are certain principles and pearls of wisdom that newbies and experienced professionals alike adhere to within almost every profession. They often turn out to be true and, thus, provide useful guidance within that professional field. In the realm of finance journalism, there is one major principle that we often reiterate: "If media is excessively reporting about a certain stock, the trend is often already over". This wisdom holds true for both directions of movement regardless of whether we talk about GameStop (NYSE: GME) on the upper side or Wirecard (FRA: WDI) (OTC: WCAGY) on the bottom end of the equation. The art, as we believe, is to identify potential trends beforehand. That means you have to know that BioNTech (FRA: 22UA) (NasdaqGS: BNTX) had the best chances to develop the COVID19 vaccine before they actually did it. Equally, it means that you also need to be attentive to potential structural flaws within a company that does not add up. Browsing through the broad universe of the financial world, I stumbled upon an old friend that shows just these signs of structural flaws.

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Image Source: Unsplash

In January 2021, Saudi Aramco, which is one of the largest companies in the world by market capitalization, was in the news for manipulating their carbon emission disclosure to paint a more favorable picture of the company's sustainability policies. At that time, we merely viewed this as a marketing measure without any further implications and believed that the company simply wanted to put itself into a better light in front of its shareholders. But roughly three weeks ago, Aramco's annual report for the year 2020 came out. Once again, we see that the disclosed numbers do not accurately reflect the company's actual carbon emissions. That triggered my interest, but I was not alarmed yet.

First of all, it needs to be said that Aramco included more wholly-owned subsidiaries and international refineries in the carbon emission disclosure but still left out some particular entities. After the scandal in January, Aramco should have learned from the consequences and honestly approached the whole thing. In addition to that, the special envoy for the USA's climate (also an old friend) announced last week that there are plans on the way that publicly traded companies will have to disclose the climate risks that they face in the future. This shows that a business's carbon emission aspect becomes a considerable concern for shareholders and is subject to a global reduction trend. In accordance with this trend, the IMF currently works on a concept that allows for debt relief in developing economies, given the case that they invest in structuring their economies in a more sustainable and environment-friendly way. While all these developments are underway, the world's biggest oil company and one of the biggest companies in the world is constantly understating their carbon emissions. However, this is a significant concern due to the nature of this business. Now, the alarm bells start to ring quietly.

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William K. 3 weeks ago Member's comment

It does sound like it will be"interesting", but not fun at all.

I am aware that sometimes decisions are made based on emotions and not logic, and that causes unfortunate results. I can offer no solution to that.