Philippa Kaur

DARREN WOODS made some revealing remarks this week about global warming. His ruminations matter in America’s oil industry for he is the boss of ExxonMobil, the largest Western oil major. His firm has historically been less enthusiastic than its rivals about taking climate change seriously. But a shareholder revolt last May placed three green-tinted directors on its board. That has put pressure on the Texan company’s management to curb emissions with more ambition.On January 18th Mr Woods unveiled the firm’s long-awaited update to its climate strategy. “Is society sincere in its desire for a lower-emissions future?” asked the veteran oilman when pressed on the thinking behind the plan. It is, he says. “And so are we.” Evidence for this lies in a newfound willingness to commit to hard targets for cutting greenhouse-gas emissions.The first, long-term target is for the company eventually to achieve carbon neutrality in its operations by 2050. It has been fashionable of late for big firms to claim that they will achieve “net zero” emissions by some distant date. Not all of them lay out concrete plans for how they will actually do this. Often, they plan to rely heavily on carbon offsets, which could let them buy emissions credits of dubious quality cheaply rather than making painful emissions cuts and costly changes to their operations. Mr Woods has previously dismissed such proclamations as nothing more than a “beauty competition”.In contrast to such pageants, ExxonMobil’s new long-term goal is accompanied by concrete plans for cutting emissions this decade. And in a big U-turn, the firm will commit to absolute cuts in its carbon emissions—a step it has long resisted in favour of squishier reductions in “emissions intensity”. It pledged to emit about 20% less greenhouse gases by 2030 relative to 2016, with emissions from exploration and production set to decline by approximately 30% over that period. Thirty-plus operating divisions will each get a binding target, which will add up to the company-wide total. Managers at each division will then be held accountable for achieving those cuts, with no wiggle room or trading among divisions permitted.[embedded content]The firm’s plans for its shale business in America’s Permian region are illustrative. ExxonMobil says it will achieve net-zero operating emissions in this region, responsible for over 40% of its American hydrocarbon output, within the decade. It plans to achieve most of that through the use of novel low-carbon technologies and improvements in its practices, from replacing leaky compressors and powering operations with green energy to carbon capture and storage (CCS). It is flaring less methane, a potent greenhouse gas, and working with third parties to monitor fugitive emissions using satellites, aerial reconnaissance and sensors. The firm insists it will rely on carbon offsets for at most “a few percentage points” of emissions cuts.ExxonMobil’s new plan is, then, an improvement on its earlier climate recalcitrance. How much it actually does for the planet is another matter. Unlike many rivals, ExxonMobil does not count emissions from fields operated by joint-venture partners, which gives a fuller picture. Most important, the road map covers only emissions emanating from the company’s own operations and energy use (scope 1 and scope 2 emissions, respectively, in the jargon). European rivals such as BP, Shell and TotalEnergies have additional targets to reduce the emissions intensity of their products by 2050. That is why they have piled into renewables.Some oilmen argue that the makers of petrol-burning cars or their drivers should share more of the responsibility for limiting these “scope 3” emissions. Such arguments, though not wholly without merit, are also self-serving: end users can account for 80-90% of the total climate-warming gases associated with fossil fuels. Ignoring them in your carbon accounting seems mighty convenient.ExxonMobil’s plan does open the door to a pursuit of fuller net-zero beyond scopes 1 and 2. But it is not interested in renewables, which is a lower-margin business than oil (as reflected in the European firms’ lower valuations). Instead, it is investing $15bn over the next five years in areas such as hydrogen, CCS and biofuels. The snag is that these promising low-carbon technologies have not yet found profitable business models.They may never do, at least without government inducements. ExxonMobil believes that decarbonisation carrots in the form of tax credits and subsidies will offset some of the higher costs of its low-carbon bets and help keep the firm’s overall margins high. Ultimately, Mr Woods says, low-carbon strategies will require some state support in order to generate good returns. If big oil is to make big profits from the energy transition, in other words, it needs big government. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

A RATHER GOOD black comedy called “Another Round” depicts what happens when a bunch of disenchanted Danish school teachers constantly top up the levels of alcohol in their blood. At first the experiment goes well: the students respond enthusiastically to their newly inspiring teachers. But unconsciousness, bed-wetting and worse soon ensue. By the end of the film, it is almost like a normal day in Downing Street.A series of revelations about parties held in the home of the British prime minister during the pandemic, while the rest of the country was subject to covid-19 restrictions that banned such jollity, has put Boris Johnson’s job on the line. The story has brought with it allegations of a culture of drinking among staff in Number 10: whip-rounds among colleagues to buy a wine-cooler; “prosecco Tuesdays” and “wine-time Fridays”; a suitcase used to ferry booze into the office.Downing Street is a specific place: most people can socialise outside work without worrying about journalists eavesdropping. “Partygate” nonetheless raises the wider question of whether alcohol belongs in any office.The pitfalls of combining drink and work are obvious. One is safety: a study from 2005 found that one in four industrial accidents worldwide could be attributed to drugs or alcohol. A second is that it encourages addiction. Alcohol use is the biggest risk factor for premature death and disability among 15-to-49-year-olds globally, according to the World Health Organisation. Research carried out in Canada found that norms encouraging workplace drinking, whether getting a round in after work or making booze available in the office, were predictive of alcohol problems.A third consideration is the effect of sloshed colleagues on their co-workers. Roughly one-sixth of Norwegian employees say they experience harm from their colleagues’ drinking, whether through unwanted sexual attention or simply feeling excluded. A recent 12-country survey found that 9% of employees each year experience some negative spillover effect, principally through having to cover for their co-workers in some way.No wonder some organisations ban drinking on the premises or in working hours. Lloyd’s of London, an insurance marketplace long associated with boozing, stopped its own employees from imbibing between 9am and 5pm in 2017; two years later it extended the prohibition to the much larger group of people with access to its building. But boundaries are hard to police. Lots of work-related drinking happens after hours and out of the office. That is especially true in the wake of the pandemic, when the lines between office and home have become so blurred. Is someone working at home with a glass of wine drinking on the job?Bans can also be counterproductive. Lunches may not be as liquid as they once were, but salespeople will still sometimes want to wine and dine a client. A paper from 2012 found that a certain level of intoxication improved people’s problem-solving ability; writers at The Economist have been known to combine claret and keyboard. Work drinks are a simple way to show appreciation for employees. Plenty of people enjoy alcohol and are capable of doing so in moderation. Leaving dos and office parties would be a lot less fun for many without a glass in hand.The liberal argument—that, within reason, people should be able to make their own choices—is a good way to frame policies on work-related drinking. Let people have a tipple, so long as it does not impair their productivity. Make sure that choice genuinely goes both ways: stigmatising non-drinkers is a problem, particularly in boozy cultures like South Korea’s. Normalise restraint, by restricting the frequency of work events and the amount of drink on offer.And if you do worry about your drinking culture, the Downing Street shambles can help. Here are ten signs that things may be getting out of hand:• You think a suitcase is a unit of measurement.• You try to expense your fridge as a piece of office equipment.• You bring booze to work events and laptops to parties.• Your behaviour requires you to apologise to the queen.• You cannot count to ten.Alcohol and work can go together, but in moderation. That may not be the most original advice in the world, but following it would have left Mr Johnson with less of a headache. More

EVEN FOR Microsoft, which boasts a market capitalisation of around $2.3trn, $69bn is a lot of money. On January 18th the firm said it would pay that sum—all of it in cash—for Activision Blizzard, a video-game developer. It is both the biggest acquisition ever made in the video-game industry and the biggest ever made by Microsoft, more than twice the size of the firm’s purchase in 2016 of LinkedIn, a social network, for $26bn (see chart). The move, which caught industry-watchers by surprise and propelled Activision Blizzard’s share price up by 25%, represents a huge bet on the future of entertainment. But not, perhaps, a crazy one.The gaming industry was growing apace before the pandemic. Covid-19 lockdowns bolstered its appeal—to hardened gamers with more time on their hands and bored neophytes alike. Worldwide revenues shot up by 23% in 2020. NewZoo, an analysis firm, puts them at nearly $180bn. Microsoft is already a big player in the business, thanks to its Xbox games console. It has made a string of gaming acquisitions since 2014, when Satya Nadella, its chief executive, took the reins. The Activision Blizzard deal would cement its position. Once completed in 2023, it will make Microsoft the third-largest video-gaming firm by revenue, behind only Tencent, a Chinese giant, and Sony, Microsoft’s perennial rival in consoles.Activision Blizzard’s share price had slid by around 40% between a peak last February and the deal’s announcement, as the company was embroiled in a sexual-harassment scandal and some of its games underwhelmed. That may have made it look cheap in relative terms, given the benefits it brings to Microsoft. It boasts annual revenues of around $8bn and net profit margins of 30%. Most important, Activision Blizzard offers plenty of content—and in video games, as in the rest of the media industry, content is king, says Piers Harding-Rolls of Ampere Analysis, another research firm. Like the film business, where “Star Wars” films, even bad ones, are reliable money-spinners, video games rely increasingly on “franchises”—popular settings or brands that can be squeezed for regular new games. Activision Blizzard boasts, among others, “Call of Duty”, a best-selling series of military-themed shoot-em-ups, “Candy Crush”, a popular pattern-matching mobile game, and “Warcraft”, a light-hearted fantasy setting.In the short term, the deal gives Microsoft more of a foothold in the smartphone-gaming market, to which it has had little exposure. King, a mobile-focused subsidiary of Activision Blizzard, boasts around 245m monthly players of its smartphone games, most of whom tap away at “Candy Crush”. It is also a strike against Sony. If Microsoft controls the rights to “Call of Duty”, it can decide whether or not to allow the games to appear on Sony’s rival PlayStation machine. When Microsoft bought ZeniMax Media, another games developer, for $7.5bn in 2020, it said it would honour the terms of ZeniMax’s existing publishing agreements with Sony, but that Sony’s access to new games would be considered “on a case-by-case basis”.In the longer term, says Mr Harding-Rolls, the deal should help Microsoft achieve its ambition to make gaming cheaper and more accessible (including, if hype is to be believed, in the virtual-reality “metaverse”). Its “Game Pass” product already offers console and PC gamers access to a rotating library of video games, which usually cost $40-60 each, for $10 a month. Adding Activision Blizzard’s catalogue to the service could boost its appeal. It could also strengthen Microsoft’s two-year-old game-streaming service, which aims to use the firm’s Azure cloud-computing division to do for video games what Netflix did for video. Microsoft hopes to stream games across the internet to a phone, television or PC, removing the need to own a powerful, dedicated console or PC. That could lower the cost of the hobby and draw in more players, especially in middle-income countries where smartphones are common but consoles are rare. And that, in turn, would make exclusive content even more valuable.Other firms—both games-industry veterans and arriviste tech titans attracted by the sector’s growth—have streaming ambitions of their own. Sony runs its own service, called “PlayStation Now”. Amazon launched an early version of its own “Luna” service in 2020. “GeForce Now”, a streaming offering from Nvidia, a maker of gaming-focused microchips, launched the same year. But none is as well-placed as Microsoft, which has decades of experience in the games business and boasts the world’s second-largest cloud-computing operation after Amazon. And the more content Microsoft owns, the more attractive it can make its service compared with its rivals.Such thinking may provoke more deals by Microsoft’s competitors, eager to snap up franchises of their own while they can. The gaming industry was already seeing plenty of merger activity. Last year saw five deals worth $1bn or more. On January 10th Take-Two Interactive, a game developer and publisher, spent $13bn to buy Zynga, a maker of mobile-phone games. Besides Amazon, both Apple and Netflix have dipped their toes into the video-game business in recent years; an acquisition by either one could help boost their presence. Consolidation is the name of the game.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

THE PANDEMIC has given a big shove to all forms of digital communication. Video-conferencing platforms have become verbs. Venture capitalists make their bets after watching virtual pitches. Products like Loom and mmhmm help workers send pre-recorded video messages to their colleagues. More than a third of Slack users each week are now “huddling”—using the product’s new audio feature to talk to each other. And all this is before the metaverse turns everyone into an avatar.A workplace dominated by time on screens may seem bound to favour newer, faster and more visual ways of transmitting information. But an old form of communication—writing—is also flourishing. And not just dashed-off emails and entries on virtual whiteboards, but slow, time-intensive writing. The strengths of the written word have not been diminished by the pandemic era. In some ways they are ideally suited to it.*The value of writing is a staple in management thinking. “The discipline of writing something down is the first step toward making it happen,” reckoned Lee Iacocca, a quotable titan of the American car industry. Jeff Bezos banned slide decks from meetings of senior Amazon executives back in 2004, in favour of well-structured memos. “PowerPoint-style presentations somehow give permission to gloss over ideas,” he wrote.Some executives write for themselves. Andrew Bosworth, a bigwig at Meta (formerly Facebook), has a blog in which he muses interestingly on many topics, including on writing itself: “In my experience, discussion expands the space of possibilities while writing reduces it to its most essential components.” Others do so to reach an audience. Shareholder letters from Larry Fink and Warren Buffett are the corporate equivalent of a blockbuster book launch.But the move to remote working has enhanced the value of writing to the entire organisation, not just the corner office. When tasks are being handed off to colleagues in other locations, or people are working on a project “asynchronously”, meaning at a time of their choosing, comprehensive documentation is crucial. When new employees start work on something, they want the back story. When veterans depart an organisation, they should leave knowledge behind. Writing everything down sounds like an almighty pain. But so is turning up to a meeting and not having the foggiest what was decided last time out.Software developers have already worked out the value of the written word. A research programme from Google into the ingredients of successful technology projects found that teams with high-quality documentation deliver software faster and more reliably. Gitlab, a code-hosting platform whose workforce is wholly remote, frames the secret of successful asynchronous working thus: “How would I deliver this message, present this work, or move this project forward right now if no one else on my team (or in my company) were awake?” Gitlab’s answer is “textual communication”. Its gospel is a handbook that is publicly available, stretches to more than 3,000 pages and lays out all of its internal processes.The deliberation and discipline required by writing is helpful in other contexts, too. “Brainwriting” is a brainstorming technique, used by Slack among others, in which participants are given time to put down their ideas before discussion begins. Lists of corporate values can make greeting cards seem hard-hitting. But thoughtful codification of a firm’s culture makes more sense in hybrid and remote workplaces, where new joiners have less chance to meet and observe colleagues.Purists will sniff that none of this counts as writing. But good prose and useful prose share the same essential qualities: brevity, structure, a clear theme. Cormac McCarthy, a prize-winning novelist, copy-edits scientific papers for fun. Ted Chiang says that his science-fiction short stories and his technical writing both draw on a desire to explain an idea clearly.Writing is not always the best way to communicate in the workplace. Video is more memorable; a phone call is quicker; even PowerPoint has its place. But for the structured thought it demands, and the ease with which it can be shared and edited, the written word is made for remote work.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Of remote work and writing” More

THE BOSSES of Germany’s 3.6m medium-sized and small manufacturing firms would have loved to see last year’s general election yield a pro-business government of the centre-right Christian Democrats and the liberal Free Democrats (FDP). What the Mittelstand got instead was a pact between the Social Democrats (SPD), the FDP and the Greens. That is still too leftie for many tastes. But it could have been worse. Plenty of chief executives feared that Olaf Scholz, the new SPD chancellor, would row back his pre-election vow not to form a business-bashing coalition that would include Die Linke, a hard-left party.A disaster averted may be one reason why the Mittelstand is not despondent at the start of the new year. Another is that big chunks of the coalition treaty, which runs the length of a slim novel, “go in the right direction”, says Hans-Jürgen Völz, chief economist of the BVMW, a Mittelstand trade body. Still, several gripes remain.One is taxation. During the election campaign the SPD, the Greens and Die Linke mooted the idea of re-introducing a wealth tax and raising inheritance taxes. Such a move would hit the Mittelstand’s family firms hard. It now appears to be off the table thanks to opposition from the FDP, whose boss, Christian Lindner, is the new finance minister. But so, too, is the prospect of a corporate-tax cut, from a headline rate of 30% to 25%, and the abolition of the personal “solidarity” tax (known as soli), the proceeds from which flow to the formerly communist east.The Mittelstand’s second peeve is red tape. “Bureaucracy is costing German business around €50bn ($57bn) a year,” says Mr Völz. Over the last decade parliament has passed three legislative packages to ease the bureaucratic burden on the Mittelstand. But little real progress has been made. According to Nikolas Stihl, head of the supervisory board of Stihl, the world’s leading maker of chainsaws, excessive bureaucracy helps explain why Germany is 30 years late with big infrastructure projects such as the feeder road for the 55km railway tunnel that is being dug beneath the Brenner Pass linking Austria and Italy. “We don’t know any more how to implement big projects,” sighs Mr Stihl.Besides these longstanding gripes the Mittelstand has two more pressing ones. As in many countries, German firms struggle to find qualified workers—or any workers. Bosses want Mr Scholz to push the EU to extend the “blue card”, a work permit that helps university-educated migrants take up job offers in the bloc, to blue-collar workers. A separate Chancenkarte (opportunity card) promised in the coalition treaty would enable migrants to look for work in Germany provided they fulfil criteria such as a working knowledge of German.The most burning problem for manufacturers is the soaring cost of energy. Many also fret about Germany’s dependence on Russian gas. “Even worse than the 70% increase of our company’s energy costs is the worry about security of supply,” says Ferdinand Munk, owner and boss of Günzburger Steigtechnik, a maker of ladders and rescue kit in Bavaria. He worries that “the gas taps could be turned off at any time.” So far Mr Scholz has not signalled how he plans to tackle the energy problem.At least the Mittelstand’s mood is leavened by bursting order books. As demand for goods ballooned in the pandemic, German firms in the manufacturing supply chain have thrived. “We have the highest number of orders in our nearly 100-year history,” beams Andreas Möller, a spokesman for Trumpf, a maker of machine tools in the south German city of Ditzingen. A covid-era gardening boom helped lift Stihl’s sales from €3.9bn in 2019 to €4.6bn in 2020—and the firm is poised to report record revenues in 2021, too.More than half of the firms polled by the BVMW in a recent survey reported that they were in good or very good shape. Nearly 45% said they would hire more staff this year. Over 70% will maintain or increase investments. If shortages of workers or energy prevent these pocket powerhouses from fulfilling orders, Mr Scholz may lose much of the remaining goodwill that the Mittelstand still harbours. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “What the Mittelstand wants” More

“WHEN YOU gaze into TikTok, TikTok gazes into you,” wrote Eugene Wei, a tech blogger, in 2020, explaining the almost clairvoyant nature of TikTok. What the algorithm sees as it gazes into your columnist, a neophyte user, is anyone’s guess: a random feed delivers tips on how to design a ball gown, someone barking at a dog, Rod Stewart with a hankie on his head, and (phew!) Maya Angelou reciting “Phenomenal Woman”.Schumpeter is quite clear, however, about what he sees in TikTok. It is not just the busty seductiveness of many of the clips that he cannot help noticing. It is the serious money changing hands. And the unmistakable thrill of creative destruction.About time. Just five years after its birth, TikTok claims to have exceeded 1bn monthly users, despite a ban in India. On January 12th App Annie, a data gatherer, said TikTok caught up with Facebook in 2021 and overtook WhatsApp and Instagram in time users spent on it. Notwithstanding a judge’s decision on January 11th to allow America’s Federal Trade Commission to sue Meta, the social-media trio’s parent company, on antitrust grounds, TikTok’s success appears to mock the argument that Facebook is impregnable.TikTok derives its magic from its algorithm and the data on which it is trained. Unlike Facebook’s rolling feed, TikTok’s simple, one-video interface means that the app always knows exactly what a user is watching. Clips are short, so viewers see a lot of them, generating plenty of information. This, combined with few friends and family clogging up the feed, allows the algorithm to match users with content creators that actually entertain them. And because videos are mostly shot on a smartphone, anyone can make them. Barriers to entry are low. Virality is high.A big question remains. Can TikTok win business as well as it woos eyeballs? Its provenance has long suggested it can. It is born out of ByteDance, a privately held Chinese powerhouse that some think generated more than $40bn in revenues in 2021. Its sister app, Douyin, has thrived in China’s hyper-competitive social-media market, which makes Silicon Valley look staid by comparison. That gives TikTok hands-on commercial experience to draw on.So far its revenues, though growing fast, are reportedly low (it discloses no financial information). That is unsurprising. Donald Trump’s abortive attempt in 2020 to ban it on national-security grounds scared away advertisers. The ensuing drama—a thwarted sale, management upheaval and uncertainty over its relationship with ByteDance—caused yet more disarray. But these hurdles now appear to be behind it. In the absence of further geopolitical turmoil, TikTok could shake up the business model of social media in America, not just the user experience.There are several ways it could do so. Start with advertising. Google and Facebook pioneered the pay-per-click approach. TikTok is transforming it further, inviting brands to work with creators to make potentially viral content, such as skateboarders swigging Ocean Spray juice to the sound of Fleetwood Mac. Sometimes a brand’s presence might only be visible via a hashtag.Second, e-commerce. Like other American social-media platforms, TikTok now enables viewers to buy goods directly by tapping a shopping tab on a video. It has teamed up with Shopify, an e-commerce platform, to bring more merchants to the site. So-called social commerce—including via live streaming—is far bigger in China than in America. Jeremy Yang of Harvard Business School says TikTok may build on Douyin’s experience in this field to bolster its online-shopping business.Third, the creator economy. It is not just that, according to Forbes magazine , TikTok’s seven highest-paid stars earned a total of $55.5m from work on and off the platform last year, triple the sum it counted in 2020. TikTok has also recently introduced ways for users to provide gifts and tips to favoured creators, boosting the incentive to produce fresh material and providing fees to TikTok. Such practices first took off in China.None of these innovations will amount to much if TikTok has another near-death experience. That is why it appears to be putting a final piece of its commercial strategy into place: balancing the demands of America and China. It has appointed Shou Zi Chew, a Singaporean of Chinese ethnicity, as CEO. He is based in the city-state, which serves as neutral territory. He is comfortable on both sides of the Sino-American divide, having been educated in the West and served as chief financial officer of ByteDance and Xiaomi, a Chinese smartphone-maker. It is still an open question whether he can—or even should—further disentangle TikTok from ByteDance to curb the perception that China could make nefarious use of TikTok’s data. To do so may help geopolitically. But cutting TikTok off from an army of Chinese software engineers could also jeopardise its mind-reading brilliance.TikTok faces plenty of other challenges. It needs to invest heavily in content moderation to ensure toxic videos are removed before they go viral. Addiction is a palpable concern, not just as a meme—#tiktokaddict has more than 500m views. The app faces probes about data privacy, particularly of under-age users. Regulatory risk will rise as TikTok becomes more prominent.One thing TikTok need not fear is being crushed by the big beasts of Silicon Valley (at least without help from Uncle Sam). Instagram has sought to mirror TikTok with “Reels”, and YouTube, owned by Google’s parent company, Alphabet, has introduced “Shorts”. Neither has damaged TikTok’s popularity.#LessonforChinaThat is a good thing. TikTok is on the vanguard of ideas pioneered in China’s video-mad social-media landscape that have taken years to permeate America. At a time when the Chinese Communist Party is arbitrarily cracking down on the consumer-tech industry it is especially gratifying to witness Chinese free enterprise and ingenuity grab the world’s attention. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Creative seduction” More

CALLS FOR the oil business to decarbonise are growing louder everywhere, and not just from governments and environmentalists. Moody’s, a rating agency, reckons that half of the $1.8trn in the energy industry’s global debt stock that it evaluates is held by asset managers and insurers who face increasing pressure on environmental, social and governance (ESG) fronts, notably the climate. An annual survey of 250 big institutional investors published on January 6th by the Boston Consulting Group (BCG) found that more than four in five think it is important for firms to establish targets for long-term emissions reductions. Nearly as many “feel increased pressure” to apply green filters to investments.At the same time, the International Energy Agency, a global forecaster, expects worldwide oil consumption to return to its pre-pandemic level of 100m barrels a day (b/d) in 2022. Even if it rose by no more than 1% a year after that, the natural rate of reservoir depletion means that 12m-17m b/d of new supply must be added in the next five years to meet demand, reckons Alastair Syme of Citigroup, a bank. Investors recognise this. As economies reopened last year after the worst ravages of the pandemic and the oil price recovered—this week it is flirting with a seven-year high of $85 a barrel—energy became the best performing sector in the S&P 500 index, ahead of technology and finance. It left environmentally friendly stock picks in the dust (see chart).This tension was on display last month at the World Petroleum Congress in Houston, a triennial celebration of hydrocarbons attended by more than 1,000 energy ministers, oil bosses and other industry luminaries. Houston’s mayor, Sylvester Turner, kicked off the proceedings by declaring that “as the energy capital of the world, we have a moral obligation to reduce carbon emissions.” Shortly afterwards Amin Nasser, chief executive of Saudi Aramco, the world’s oil colossus, warned of inflation and social chaos unless countries accept that “oil and gas will play an essential role during the transition”. Between visits to booths where oil firms from Aramco to ExxonMobil, an American supermajor, competed to look lower-carbon than rivals, attendees could be heard wringing their hands about falling capital spending on exploration and production, which declined from around $500bn globally in 2019 to $350bn in 2020. Daniel Yergin, a Pulitzer-prizewinning energy wiseman at IHS Markit, a consultancy, warned that “pre-emptive underinvestment” risks hurting the world economy.Not in concertListen closely, though, and the cacophony reveals the mix of strategies that big oil is pursuing as it looks ahead to the next decade and beyond. The Europeans are increasingly going all in on greenery. The state-controlled giants such as Aramco are biding their time. And the Americans are engaged in a delicate balancing act somewhere in between.The European firms’ approach represents the sharpest break with the past. They are divesting many oil assets, especially the dirtiest ones, and replacing them with bets on green-power generation. In December Shell, a British giant, completed a $9.5bn sale of shale fields in the rich Permian basin. Britain’s BP and France’s TotalEnergies have sold off, respectively, some $3bn and $2.3bn in assets since October 2020.Bernard Looney, BP’s boss, has defended his firm’s shift by insisting that “this isn’t charity, this isn’t altruism.” Perhaps. But nor is it as good a business as pumping oil. IHS Markit estimates that global investments in oil and gas have generated a median annual operating return on capital of 8.3% since 2010, compared with 5% for renewables. Moreover, green energy is unfamiliar territory for the oil companies, where they face stiff competition from incumbents such as Orsted and Vestas, two European renewables giants. One analyst calls it the “low return, low regret” strategy.By contrast, the national oil giants’ approach could be summed up as “high returns, no regrets”. The Persian Gulf behemoths, led by Aramco, have the biggest conventional oil reserves and lowest costs. In an ironic twist of geology, Saudi Arabia’s oil reserves are also among the least carbon-intensive to develop. Largely impervious to pressure from shareholders and environmentalists, their share of global oil investments has risen from around a third in the early 2000s to more than half. According to Bob Brackett of Bernstein, an investment firm, the dilemma for the state-controlled behemoths is how to keep oil prices high without choking off demand.American oil companies cannot afford to be as patient as the Gulf petro-states. They also reject the European retreat from crude. Their strategy involves mopping up some of the industry’s emissions. But its centrepiece is trying to become ever more efficient at pumping oil while resisting the urge to splurge on new capacity whenever oil prices rise.The American firms’ decarbonisation drive is different from the European one in two ways. They are funnelling far less of their future capital spending to low-carbon projects compared with counterparts across the Atlantic. And the lion’s share is not going on ventures that replace hydrocarbons but on limiting or offsetting the companies’ climate impact.Most of America’s big oil companies have plans to limit leaks of methane, a powerful greenhouse gas, from their pipelines and produce hydrogen, a promising clean fuel, from natural gas. ExxonMobil is spearheading a proposed $100bn carbon-capture-and-storage consortium. Analysts observe that shallow-water leases in the Gulf of Mexico that the firm recently acquired do not fit with its oil strategy but are suited to storing carbon dioxide. More ambitiously still, Occidental Petroleum is helping scale up the world’s largest “direct air capture” facility to suck carbon dioxide from the air, whose construction will begin later this year in the Permian. “There is no more arguing…climate change is real and we have to address it,” insists Vicki Hollub, Occidental’s boss.In time, such projects may play a role in cleaning up the climatic mess that the oil industry has had a hand in creating. For now they remain a sideshow and, in the candid words of one American oil boss, “provide cover” for investors who need to genuflect to ESG activists. Indeed, both the shareholders and managers of America’s oil companies have a clear primary objective—to milk the high oil prices without succumbing to capital indiscipline that has often followed periods of pricey crude.Nowhere is this clearer than among the country’s shale producers. S&P Global Platts, a research firm, points to big improvements in productivity and efficiency in America’s shale patch, which contains some of the world’s cheapest remaining hydrocarbon stores. The time required to get new projects online has shortened dramatically in the past few years. Costs have fallen, too. Many shale producers now generate cash when the oil trades at $40 a barrel, down from a “breakeven” price of $80 a barrel a decade ago.Doing frackin’ greatShale firms made more money last year with oil at $70 a barrel than they had when prices surpassed $100 in 2014. Having burned through $150bn in cash from 2010 to 2020, they will generate cumulative cashflow of nearly $200bn between 2010 and 2025, reckons IHS Markit. Devon Energy, a big shale operator, has managed to cut its operating expenses in the Permian by nearly a third since 2018. That, plus roughly $600m in annual savings from a merger with WPX, a rival, has pushed its breakeven point down to as low as $30 a barrel, boasts its chief executive, Rick Muncrief.Mr Muncrief attributes his firm’s sparkling stockmarket performance last year—when its shareholder returns approached 200%—in part to its pioneering use of variable dividends, which promise investors both a traditional fixed payout and a share of free cashflow when oil prices surge. Scott Sheffield, Mr Muncrief’s opposite number at Pioneer Natural Resources, a rival company, adds that the growth-at-all-costs mindset that led to several shale crashes in the past has been replaced by “a new investor contract”. This puts returning cash to shareholders ahead of debt-fuelled expansion. Moody’s calculates that shale producers’ ratio of debt to gross operating profit will fall to 1.8 this year, down from 4.4 in 2020.It could all come undone. The oil price could crash. Or the companies could revert to their undisciplined ways. In a report published on January 11th America’s Energy Information Administration forecast that shale production will hit a new record in 2023.For now, though, the American strategy seems to be working, whether or not it is good for the climate. At the start of the year American oil firms’ shares were trading at a 69% valuation premium relative to those of their European peers, according to Bernstein. Companies that focus on finding oil and pumping it from the ground have done especially well. An index of such “upstream” firms compiled by Bloomberg, a data provider, shot up by 86% last year, the biggest annual gain since its creation in 1995 and far outpacing the 55% rise in the oil price. This implies that the soaring share prices do not reflect a temporary windfall. For all their low-carbon talk, in other words, investors are not giving up on oil—and American oil bosses know it.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

TECH AND health care have a fraught relationship. On January 3rd Elizabeth Holmes, founder of Theranos, a startup that once epitomised the promise of combining Silicon Valley’s dynamism with a stodgy health-care market, was convicted of lying to investors about the capabilities of her firm’s blood-testing technology. Yet look beyond Theranos, which began to implode way back in 2015, and a much healthier story becomes apparent. This week a hoard of entrepreneurs and investors will gather virtually at the annual JPMorgan Chase health-care jamboree. The talk is likely to be of AI, digital diagnostics and tele-health— and of a new wave of capital flooding into a vast industry.Clunky, costly, highly regulated health systems, often dominated by rent-seeking middlemen, are being shaken up by companies that target patients directly, meet them where they are—which is increasingly online—and give them more control over how to access care. Scientific advances in fields such as gene sequencing and artificial intelligence (AI) make new modes of care possible. E-pharmacies fulfil prescriptions, wearable devices monitor wearers’ health in real time, tele-medicine platforms connect patients with physicians, and home tests enable self-diagnosis.The prize is gigantic. Health care consumes 18% of GDP in America, equivalent to $3.6trn a year. In other rich countries the share is lower, around 10%, but rising as populations age. The pandemic has made people more comfortable with online services, including digitally mediated care. Venture capitalists detect a sector that is uniquely ripe for disruption. CB Insights, a data provider, estimates that investments in digital-health startups nearly doubled in 2021, to $57bn (see chart 1). Unlisted health-care startups valued at $1bn or more now number 90, four times the figure five years ago (see chart 2). Such “unicorns” are competing with incumbent health-care companies and technology giants to make people better and prevent them from getting ill in the first place. In the process, they are turning patients into consumers.Consumer health care has long been synonymous with over-the-counter painkillers, cough syrup, face creams or Band-Aids peddled by big drugmakers. In a recognition that their uninnovative consumer divisions have become a drag, Johnson & Johnson, America’s (and the world’s) most-valuable pharmaceutical company, and GlaxoSmithKline, a giant British rival, are spinning them off. The hope is that without the cross-subsidy from the more lucrative prescription-drug arms, the rump consumer businesses will spruce up and become more inventive. Some more adventurous incumbents are already experimenting with digitisation and consumerisation. Teva, an Israeli pharmaceutical firm which dates back to 1901, has developed a digitally enabled inhaler equipped with app-connected sensors that tell users if they are employing it properly.Left to their own devicesThe second group of companies with new consumer-health ambitions is big tech. After a series of abortive attempts to tiptoe into the health business—as with Google’s short-lived platform for personal health data, scrapped in 2011—the technology giants are finally finding their feet. According to CB Insights, Alphabet, Amazon, Apple, Meta (Facebook’s new parent company) and Microsoft collectively poured some $3.6bn into health-related deals last year. They are particularly active in two areas: devices and data.Deloitte, a consultancy, reckons that 320m consumer medical wearables will ship globally in 2022 (see chart 3). In 2020 Amazon unveiled its $100 Halo band. Last year Google acquired Fitbit, which makes a fancier fitness tracker, for $2.1bn. The latest Apple watch already offers an electrocardiogram (ECG) function and the iPhone-maker plans to throw in blood-oxygen sensors and a thermometer to help women track ovulation. The latest smartwatch from Samsung, Apple’s South Korean rival, sports ECG and blood-pressure monitors.The technology giants are also injecting health-related services into their cloud-based data-crunching offerings. To that end Microsoft paid $20bn last year for Nuance, an AI firm. Amazon Web Services, the e-emporium’s cloud arm, has also launched a health-care offering. Oracle, an increasingly cloud-based business-software firm, is finalising an acquisition of Cerner, a health-IT group for $28bn.Then there are the upstarts, which offer products and services of varying degrees of complexity. Some are simple online pharmacies. Truepill, a six-year-old American company valued at $1.6bn, now fulfils 20,000 prescriptions a day and runs last-mile logistics for a range of consumer-facing health brands. One is Hims & Hers Health, a big American e-pharmacy that went public a year ago via a reverse merger with a special-purpose acquisition company. Another is Nurx, which provides pre-exposure prophylactics for people at risk of contracting HIV. PharmEasy, an Indian online pharmacy, raised $500m in capital last year.Telemedicine firms, which offer a greater range of health services, have thrived as covid-19 has strained clinics’ capacity and put patients off in-person visits for fear of infection. China’s WeDoctor, a privately held operator of what it calls “internet hospitals” , was last valued at nearly $7bn. Teladoc, a listed American firm with a market value of $13bn, reported revenues of $520m in the third quarter of 2021, up by 80% year on year.Another, more sophisticated area experiencing rapid growth is at-home diagnostics. The Theranos scandal gave consumer diagnostics a bad name. Now better technology and greater realism about what it can achieve are rehabilitating the field, just as the pandemic has accustomed people to the idea of home-testing. This includes devices to analyse everything from blood sugar to stool samples. Levels Health, a two-year-old American startup, sells app-synced continuous glucose monitors directly to consumers, after seamlessly connecting them via the internet with prescribing doctors. Its founder, Josh Clemente, was inspired by having to ask a friend to smuggle such a monitor for him from Australia to confirm his hunch that he was, like one-third of Americans, pre-diabetic—in America the devices were available only on prescription to people with uncontrolled diabetes. The startup’s waiting list now stretches to 145,000 people. Digbi Health, another American firm, uses fecal matter to analyse its customers’ gut microbiome to promote gastrointestinal health. Skin+Me, a British one, uses selfies to save people a trip to the dermatologist by providing prescription-grade skin care. Thriva, also from Britain, analyses blood from finger pricks to shed light on conditions such as high cholesterol and anaemia.Doctors on demandA big reason why it has taken so long for consumer technology to disrupt health care is that the highly regulated sector does not lend itself to Silicon Valley’s “move fast and break things” mentality. But recent years have shown that disruption is possible even in rule-bound industries. Hamish Grierson, was inspired to found Thriva after witnessing a digital shake-up in his old job in payments. Levels Health’s Mr Clemente, helped keep astronauts fighting fit at SpaceX, which has prised open the once government-dominated spacefaring business.One strategy is to position yourself as selling “general wellness” products to evade rigorous scrutiny, and only consult medical professionals for advisory purposes or to convince potential investors that their products are backed with science. Thriva, for example, says its blood tests offer “insights” rather than official diagnoses.Other companies, especially those with higher-tech offerings, are treading carefully. Manny Montalvo, who oversees “Digihaler” sales at Teva, insists it is not a consumer product. “This is still medicine and the right medicine has to be selected for the patient,” he says categorically. Apple sought clearance from America’s Food and Drug Administration (FDA) for its new watch’s ECG function.The regulators, for their part, are trying to move faster themselves. The newly minted FDA chief is a former adviser to Google Health, the tech giant’s health venture. The industry hopes that on his watch the agency will finally adopt long-delayed standards for digital-health software. Australia, Japan, Singapore and the EU have set out digital-health strategies in order to create similar standards for determining the quality, safety and clinical value of new health devices. More countries are adopting data-protection rules that ought to make it clearer to entrepreneurs, investors and consumers what data can be shared, with whom and how.The consumer-health boom has hit snags. Investors who pushed the share prices of online pill-peddlers and digital hospitals up whenever covid-19 spiked have cooled on such firms now that the coronaviral threat has receded somewhat. After exceeding $30bn at the start of 2021, Teladoc’s market value is back where it was before the pandemic hit in early 2020. The prospects of Hims & Hers, whose share price has declined by three-quarters in the past year, may have been additionally dented by Amazon’s launch in late 2020 of its e-pharmacy business. China’s digital-health companies have been caught up in the Communist Party’s broader tech crackdown. WeDoctor has shelved plans for a blockbuster initial public offering in Hong Kong. The Theranos saga offers a cautionary tale of how tricky biology is compared with swathes of computer science.Some products will turn out to be duds, and regulators may yet disrupt the disrupters. Still, as Scott Melville of the Consumer Healthcare Products Association, a trade body, puts it, “There is no going back to the old paternalistic system where you are relying exclusively on a medical professional for your health care.” Enterprising companies want to help people recover more quickly or, better yet, avoid getting ill in the first place. That is a negative prognosis for the hospital-industrial complex, which profits from the very sick. For everyone else, it is mostly a positive one. For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More