Is Private Equity A Workaround For Fossil Fuel Investments?

Is Private Equity A Workaround For Fossil Fuel Investments?

Climate activists have focused on taking big banks to task for their investments in fossil fuels, but now it’s the private equity’s turn. According to a new report, the eight largest buyout firms have put almost as much money into fossil fuels as major banks, managing $216 billion worth of fossil fuel investments. Of the ten biggest private equity funds, 80% of energy investments were in fossil fuels.

Private Equity Climate Risks | Scorecard 2022, September 2022.

DW: Banks increase funding for fossil fuels despite 'net zero' pledges, February 15, 2022.

NBC: Are Major Companies Living Up To Their Net-Zero Pledges To Combat Climate Change?, February 10, 2022.

These companies are also making net-zero pledges simultaneously (AKA greenwashing). The Carlyle Group, for example, has pledged net-zero emissions by 2050, but 60% of profits in the first half of 2022 came from a $24 billion investment in carbon-based energy.

“The billions of dollars private equity firms have deployed to drill, frack, transport, store, refine fossil fuels and generate energy, stand in stark contrast to what climate scientists and international policymakers have called upon to align our trajectory to the 1.5 degrees C warming scenario,” the report states.

VICE: The Secret Ways The Oil Industry Brainwashes You | Smog + Mirrors, April 22, 2022.

UN: United by Science 2022 Launch Address by UN Secretary-General António Guterres, September 24, 2022.

WMO: United in Science 2022 | Animation, September 13, 2022.

DW: Time is running out | WMO warns 1.5 degree threshold could be topped by 2026, May 18, 2022.

Why This Matters

The short-term profitability of the oil industry -- even in the wake of the recent energy crisis -- has made private equity slow to divest from fossil fuels. But continued investments in fossil fuels will wreak havoc on both the environment and the economy. Though rich countries must stop producing oil and gas entirely by 2034 to limit warming, if corporations continue on their current trajectory, the planet will warm almost three degrees by 2100. This year’s intense series of heatwaves worldwide makes the consequences of fossil fuel dependence evident.

Fossil fuels present financial risks as well. In fact, UN Secretary-General António Guterres recently called fossil fuel investments “delusional.” And a recent study found that assets valued at $1.4 trillion risk becoming stranded due to unexpected devaluation from future climate policies.

Grantham Imperial: Dr Friederike Otto speaks to CNN's Connect the World about the extreme heat, 18 July 2022, July 19, 2022.

Euronews: UN Secretary-General says the climate crisis is placing half of humanity in 'the danger zone,' June 14, 2022.

Al Jazeera: ​​Stranded Assets | Plan It Green, January 16, 2022.

"Pollution Financiers Of Last Resort"

Private equity investments in fossil fuels are particularly dangerous because they are not subject to financial disclosure regulations, also meaning they are not accountable to the public. So when utilities and oil companies transfer assets to private equity, they are subject to far less scrutiny.

For example, New Jersey utility PSEG sold 13 fossil-fuel power plants to a private equity firm despite their commitment to going “net zero.” Meanwhile, the private equity firm Brookfield Asset Management bought oil pipelines in Canada and natural gas plants in Louisiana.

Oscar Valdés Viera, research manager at Americans for Financial Reform Education Fund (AFREF), told CBS that banks, utilities, and other public companies are slowly getting rid of their environmentally destructive assets, making private equity firms “pollution financiers of last resort.”

Democracy Now: Bill McKibben | Latest IPCC Climate Report Underscores "Fossil Fuel Is at the Root of Our Problems," April 7, 2022.

TED: Fossil fuel companies know how to stop global warming. Why don't they? | Myles Allen, December 4, 2020.

TED: How to Realistically Decarbonize the Oil and Gas Industry | Bjørn Sverdrup, March 3, 2022.

Now This: Greenwashing and Fossil Fuel Industry, May 14, 2021.

The Economist: See what three degrees of global warming looks like, October 7, 2021.