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A move is coming to phase out fossil fuels for the private equity industry


As Wall Street banks and investors face mounting pressure to divest from fossil fuels, the massive private equity industry is taking its place, according to climate activists. The eight largest buyout firms have invested almost as much money in coal, oil and gas as the big banks, according to a recent study. analysis Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF).

The firms, which include Apollo Global Management, Blackstone Group, Brookfield Asset Management, Carlyle Group, KKR and Warbug Pincus, collectively oversee $216 billion worth of fossil fuel assets, on par with the amount of money big banks invested in fossil fuels last year. non-profit groups found. Looking at the 10 largest private equity funds, he found that 80% of their energy investments were in fossil fuels.

“The billions of dollars that private equity firms have deployed to drill, frac, transport, store, refine fossil fuels and generate power stands in stark contrast to what climate scientists and international policymakers have called for to align our trajectory with global warming of 1.5 degrees Celsius. scenario,” says the reportwhich was signed by major climate groups including Greenpeace, the Natural Resources Defense Project, the Sierra Club and the Sunrise Project.


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“Pollution Funders of Last Resort”

As banks, utilities and other public companies shed polluting assets, private equity firms “emerge as financiers of last resort for pollution,” Oscar Valdés Viera, research manager at AFREF, told AFREF. CBSMoneyWatch.

“These polluting assets are moving from the public markets, where there is a greater amount of regulatory and public scrutiny, into the shadows of our financial industry, where private equity typically operates,” said Riddhi Mehta-Neugebauer, director of research at Private Equity. Stakeholder. Project.

For example, New Jersey-based utility PSEG, which has a goal of reaching net-zero emissions by 2030, recently sold 13 fossil-fuel power plants to ArcLight Capital Partners, a private equity firm.

Brookfield Asset Management recently purchased pipelines in Canada and liquefied natural gas in Louisiana. Warburg Pincus, through Citizen Energy, purchased oil and gas wells in Oklahoma. KKR, through subsidiaries, invests in oil and gas production in Texas, Utah Y Canada.

The Blackstone Group, one of the world’s largest private equity funds, is also one of the worst polluters, according to the report. In 2020, PESP calculated that Blackstone-backed power plants produced 18.1 million metric tons of carbon dioxide emissions, the same as 4 million gasoline-burning cars.

Warburg Pincus and KKR disputed his interpretation of the report, which they said incorrectly attributed assets he did not own. In a statement, Brookfield said: “We are proud to be one of the world’s largest renewable energy operators and administrator of the world’s largest climate impact fund,” noting that plans to achieve net-zero emissions in its portfolio by 2050.

Blackstone did not respond to a request for comment from CBS MoneyWatch.


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Net zero – eventually

While some PE companies have promised to go carbon-free, environmentalists say they could act much faster.

Carlyle Group, which earlier this year fiance have net-zero emissions by 2050, it still holds $24 billion in carbon-based energy through NGP Group, in which it has a stake, according to the report, which notes that 60% of Carlyle’s profits in the first half of this year they came from NGP.

A Carlyle executive said the company does not control NGP’s activities and disagreed with environmentalists’ timetable for how quickly fossil fuel plants can be phased out.

“Carlyle’s approach to invest, not divest, in the energy transition is different, based on seeking real emissions reductions within portfolio companies over the long term,” the company said in a statement. “To work toward meaningful progress on climate change, we will continue to partner with companies across the energy spectrum to collect better data and strive to make clear progress in reducing greenhouse gas emissions.”

The executive cited several examples of Carlyle’s environmental push, noting that the company has shut down coal plants under its ownership and put pressure on oil and gas companies. cepsa and Varo Energy to switch to renewable energy.

Carlyle announced in February that would reach a net zero portfolio by 2050. However, in the last year, with rising energy prices and now Russia’s war in Ukraine — the background is centered on energy security as well as sustainability, said the executive. That means keeping natural gas plants online for longer than initially planned.

More broadly, private equity firms say their investment in thousands of US companies, including many small and midsize employers, helps sustain struggling businesses and preserve jobs.

Will they listen?

Over the past decade, activists have had considerable success in pressuring major banks and money managers to defund fossil fuels, to the point where republican states they are trying to ban the practice.

But private equity firms, which raise and manage investment funds on behalf of large investors, including public pension plans, are more resistant to public criticism. Also called buying companieshave largely ignored accusations of squeezing community hospitals Y nursing homes, ripping up local newspapersand destroying popular retailers like Toys R’ Uswith the PE industry continuing thrive.

Sherrod Brown speaks at a podium surrounded by protesters
Lawmakers in Washington, DC introduced the “Stop the Looting of Wall Street Act” in 2019. It would make private equity firms liable for the debts and retirement pension obligations of the companies they buy, while their profits they depend on the success of the entities they control.

Andrew Harrer/Bloomberg via Getty Images


“Banks are accountable to their shareholders and to the public; companies are accountable in the same way, but private equity firms are only accountable to their limited partners,” said Eileen Appelbaum, co-director of the Center for Economic and Policy Research. referring to investors in a buyout fund.

Limited partners typically sign with a private equity fund manager without knowing what that person plans to buy. Once those investments are made, they have no say in how they are managed or when they are sold.

“In private equity, you’re investing in what we call a blind pool: You’re committing to this fund, but you don’t know what you’re buying because the private equity firm doesn’t know what it’s going for.” to buy yet,” said Hilary Wiek, principal analyst for fund strategies and performance at PitchBook. “First they need to raise their fund, and then they go out and look for investments.”


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Wiek noted that some PE investors are embracing the idea of ​​decarbonization, and investors today are much more concerned about the climate impact of their portfolios than they were a few years ago.

But with deadly heat waves, wildfires and floods this year killing thousands of people, definancing fossil fuels can’t come soon enough, critics say. Many entities that currently finance fossil fuels have promised to stop by 2050, a generation in the future. But a typical private equity fund owns a company for only three to five years before selling it.

“Private equity firms have a very short time frame,” said PESP’s Mehta-Neugebauer. “If they just hold on to these companies for three to five years, maybe even by the end of this decade they can achieve fossil-free portfolios.”



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