Despite the growing pressure to stop funding fossil fuel companies and support decarbonization efforts, several private equity firms are still pumping billions of dollars into the oil and gas industry. Meanwhile, most of these firms are overstating their support for a green transition and the decarbonization of the economy. The lack of transparency in the sector is allowing many firms to make risky investment decisions and finance some of the dirtiest fossil fuel projects with few repercussions.
A new report from Americans for Financial Reform Education Fund (AFREF), Global Energy Monitor, and Private Equity Stakeholder Project shows how private equity firms are continuing to use public sector workers’ retirement savings to finance fossil fuel projects. These companies have injected over $1 trillion into the energy sector since 2010, mainly buying into old and new fossil fuel projects. The report states that because of exemptions from many financial disclosures, these firms can keep investing in fossil fuels with little public knowledge of their financing choices. The private equity energy tracker created by the three organizations will continue to track the investments of these 21 firms to try and provide greater transparency about their financing.
Private equity firms are raising funds to invest in fossil fuels by mortgaging workers’ futures. The report states, “Public sector workers’ money, through national, state, and retirement pensions, provides much of the capital for private equity firms’ energy investments, but there is limited disclosure to the pension fund managers that the deferred earnings of their beneficiaries have potential climate impacts.”
The report assesses the investments of 21 private equity firms, which oversee a total of $6 trillion in assets. All 21 firms were found to be financing fossil fuel projects, which together are responsible for releasing over 1.17 billion tonnes of carbon dioxide equivalent every year, which is higher than the global emissions of the pre-pandemic aviation industry. In total, the firms funded at least 272 companies in the fossil fuel industry out of 404 energy companies overall and own some of the most polluting fossil fuel projects in North America. Many of these firms have also financed projects outside of the U.S., in at least 40 different countries in high-income states as well as in emerging economies, such as India and Brazil.
The researchers collected data from financial data services, company websites, press releases, and news reports, focusing solely on investment in upstream, fossil gas terminals, and coal plants. Out of all the companies, EIG ranked at the bottom receiving an ‘F grade’, with 23 fossil fuel companies in its portfolio, contributing to the release of 255 million metric tonnes a year.
It appears that many private equity firms are financing older and dirtier fossil fuel projects that major oil and gas companies are trying to get rid of, as most large banks view the investments as risky, leaving a gap in the market. Despite the risky nature of these projects, private equity firms are not required to publicize these investments, due to limited disclosure rules, regulatory loopholes, and complex corporate structures. Approximately 67 percent of the combined energy portfolios of the 21 firms were in fossil fuels. Meanwhile, many of these firms are proclaiming their support for the green energy transition and their commitment to rigorous ESG standards.
Dustin Duong, a research associate at AFREF, stated, “We knew that private equity has been secretly expanding into the global energy sector, but this data has been truly eye-opening.” Duong added, “It punctures their claim that they understand the urgency of the energy transition and the need to pivot to investments that can help solve the climate crisis. Until they stop supporting polluting industries, their claim of protecting communities, especially communities of color and low-income neighborhoods, will always ring hollow.”
According to separate research from S&P Global, the private equity and venture capital deal value in the oil and natural gas sector between January to mid-August this year surpassed the $6.61 billion reached at the end of 2023. This puts private equity-backed fossil fuel deals on track to reach the highest value since 2020. Private equity firms announced 47 investments in oil and gas over this period, with the U.S. and Canada dominating the sector. The growing investment trend aligns with the rise of artificial intelligence (AI) and the increased need for energy to power new technologies, that cannot be met with renewable sources alone.
Recent investigations suggest that private equity firms are investing greater levels of finance in fossil fuels than previously thought. Due to loopholes in reporting systems, many firms are not disclosing the full extent of their oil, gas, and coal investments, as well as the risk involved in these projects. In addition, the number of investments reported by private equity firms in fossil fuels is rising to pre-pandemic levels, in line with the increase in demand for high energy-consuming technologies, such as AI. This financing trend goes against government aims to decarbonise the economy and invest in an accelerated green transition.
By Felicity Bradstock for Oilprice.com