PE firms spend billions on fossil fuel assets despite ESG promises
Private equity firms have injected at least $ 1.1 billion into energy companies since 2010, according to a new report, which pointed out that buyout groups’ fossil fuel holdings are contributing to the climate crisis through greenhouse gas emissions.
The Private Equity Stakeholder Project, a US-based nonprofit group, has analyzed the portfolios of 10 private equity firms over the past decade and found a ‘persistent focus on fossil fuel assets’ . Those 10 companies, which included Blackstone and KKR, hold a total of 300 portfolio companies, but only 20% of that total was in renewables, according to the study.
Overall, data from PitchBook shows buyout groups spent $ 42.1 billion on oil and gas deals from 2020 through the end of September 2021, compared to $ 36.8 billion for suppliers of renewable energy. The money spent on renewables has grown over the years, but remains lower than the spending of funds for fossil fuel deals.
The $ 1.1 billion spent by buyout groups on energy assets is double the market value of Exxon, Chevron and Royal Dutch Shell combined, the report notes.
The results follow a stern warning from scientists in recent months and in the run-up to COP26. The Intergovernmental Panel on Climate Change released a report in August highlighting the risk the world is likely to face if drastic reductions in carbon emissions are not made soon.
“Fossil fuels continue to dominate private equity energy investments despite the efforts of individual companies touting their environmental, social and governance (ESG) investment strategies and their appetite for renewables and the industry’s trade group. private equity highlighting sustainable investments, ”the authors of the Private Equity The Stakeholders Equity Project was noted.
Growing exposure to fossil fuels
The report highlighted several recent deals that show private equity groups have broadened their exposure to fossil fuels, despite their commitment to achieve net zero emissions and expand ESG integration in response to investor demand.
For example, earlier this year Brookfield made a $ 6.8 billion offer for leading oil transportation and natural gas liquids processing company Inter Pipeline. Oaktree Capital made at least three upstream acquisitions in 2020, including a $ 900 million investment in FourPass Energy. And Blackstone, the world’s largest buyout group, has signed a deal to privatize midstream pipeline company Tallgrass Energy in 2020.
Many private equity groups have focused more on investing in renewable energy, but due to the long time the asset class has been held, even those moving away from oil and gas have been left to the companies until they can get out.
Others have continued to make new investments in the sector by scavenging unwanted assets at cheap prices.
Earlier this year, a report by Fitch Ratings chief David McNeil highlighted the tendency for private equity firms to close the funding gap as listed companies move away from fossil fuels or carbon-intensive assets.
Responding to the report on the Private Equity Stakeholder project, a Blackstone spokesperson said: “Virtually none of the capital Blackstone has invested in the past three years has been in exploration and production. We are simultaneously committed to nearly $ 11 billion in companies and projects supporting the clean energy transition and aim for a 15% reduction in emissions in total for all new investments where we control energy consumption. “
Drew Maloney, Chairman and CEO of the American Investment Council, a private equity advocacy group, said: “Private equity plays an important role in the energy transition and invests more each year in energy projects. renewable.
“In 2020, private equity funded more than half of all private renewable energy projects across America. This significant investment creates more jobs and cleaner energy for the future. ‘
The report’s authors called on investors, regulators and policymakers to require private equity firms to provide “full transparency about their holdings of fossil fuels and the impacts of those holdings on the environment and on human resources. communities “.
They added: “Given their massive exposure to fossil fuels, private equity firms have an urgent responsibility to tackle the important role they play in propelling the climate crisis and must start being transparent about it. the financial and social risks of their continued exposure to fossil fuels.
In addition to highlighting the risks of fossil fuel holdings, the report pointed out that most investments in this segment have underperformed as they have been vulnerable to the clean energy transition.
A Cambridge Associates analysis of around 200 energy funds in 2020 found that returns have lagged behind the broader private equity industry. Energy funds managed by some of the largest buyout groups, including KKR and Carlyle, posted negative returns, the authors noted.