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Private Equity Firms Promoting Fossil Fuel Consumption

Private equity firms, a type of investor with a laser-like focus on maximizing profits, have stepped into the fray as the oil and gas business faces turmoil due to global price swings and catastrophic climate change.

According to a recent analysis by the New York Times, the private equity industry has invested at least $1.1 trillion in the energy sector since 2010, more than double the total market value of the world's three largest energy companies, Exxon, Chevron, and Royal Dutch Shell. According to data from Pitchbook, an investment tracking website, and a new analysis by the Private Equity Stakeholder Project, a group that advocates for more transparency in private equity deals, the vast majority of those investments were made in fossil fuels.

According to Pitchbook data, just approximately 12% of private equity investment in the energy sector has gone into renewable energy, such as solar or wind, since 2010, even though those investments have increased at a quicker rate.

Private equity investors are taking advantage of the fact that the oil industry is receiving pressure from environmental groups, courts, and even their own shareholders to transition away from fossil fuels, which are the primary cause of climate change. As a result, many oil corporations have decided to sell off their dirtiest properties, which have frequently landed up in the hands of private equity groups.

According to an investigation by the corporate accountability nonprofits LittleSis and the Private Equity Stakeholder Project, oil and gas pipelines, coal plants, and offshore drilling sites linked to Indigenous land violations, toxic leaks, and deadly air pollution are among the dirty energy projects financed by some of the country's largest private equity firms.

Funds and investors buy and reorganize enterprises, including startups, struggling businesses, and real estate, in an opaque type of financing away from public markets known as private equity. Globally, the business manages about $7 trillion for high-net-worth individuals and institutional investors such as mutual funds, hedge funds, endowments, and pension funds, investing in everything from retail to healthcare to jails and weaponry.

Some of that money goes towards fossil-fuel projects that emit greenhouse gases, which contribute to global warming. Drought, harsh temperatures, and hurricanes are all closely linked to rising air and ocean temperatures.

Private equity businesses, unlike banks and other public trade enterprises, are exempted from most financial transparency rules, making asset tracking extremely difficult. It implies that people with pension funds invested in private equity funds, such as firefighters and teachers, have no way of knowing if their money is funding coal plants, oil wells, or solar farms.

According to the investigations found by The Private Equity’s Dirty Dozen report,

The Carlyle Group, one of the world's largest private equity firms, owns a stake in NGP Energy Capital, which has its own large portfolio focused on fracking and drilling in states such as Texas, Wyoming, and Colorado. Carlyle, which just started a goal of net-zero emissions by 2050, is also collaborating on at least $4 billion in equity and financing arrangements with Hilcorp Energy, a big methane emitter with a history of offshore disasters in Alaska and the Gulf of Mexico. (Methane traps more than 25 times the heat in the atmosphere than carbon dioxide, accounting for nearly a quarter of current global warming.)

The Coastal Gaslink pipeline in Canada, a 400-mile, multibillion-dollar infrastructure project that will transport fracked gas to a Pacific coast port for export to Asia, is controlled by Kohlberg Kravis Roberts & Co (KKR). The Wet'suwet'en Nation's hereditary leaders have called for police to clear protesters and blockades. Henry Kravis, one of the company's co-founders, gave $1 million to Trump's inauguration fund in 2017.

The General James Gavin power station in Ohio is co-owned by Blackstone and ArcLight, the world's largest private equity business with $731 billion in assets. Blackstone also has large ownership in the company that operates the Dakota Access pipeline, the oil infrastructure project that sparked the Standing Rock protest camp, where law enforcement brutalized Indigenous water protectors.

The top ten private equity companies, including Blackstone, KKR, and Carlyle, invested in energy since 2010, as per the Private Equity Stakeholder Project. According to the research, oil, gas, and coal make up almost 80% of existing holdings. Despite the fact that many of those companies boasted about their long-term investments, this was not the case.

Alyssa Giachino, Pesp’s climate director and co-author of the report, said: “While communities have shouldered the harms from fossil fuel investments, private equity firms have built vast wealth. Many firms have adopted rhetoric around sustainability, but have yet to provide transparency on their holdings and impacts.”

In recent decades, private equity firms have grown in strength and secrecy as an investment force. They usually combine large sums of money from rich or institutional investors to invest directly in businesses, which are often in crisis and unable to raise funding through more traditional means. It might be difficult to acquire a complete picture of a company's holdings or climate because the corporations are only required to publish limited information.

The findings have reignited calls for more transparency in the burgeoning private equity industry so that people suffering from hazardous pollution and harsh weather can track the money that is fueling their suffering.

However, there are some indications that things are changing. Private equity investment in renewables has grown at almost three times the rate of investment in fossil fuels since 2010, according to Pitchbook data, albeit from a significantly smaller base. Last year, a drop in oil demand caused by the Covid-19 epidemic resulted in the fewest fossil fuel agreements among the top 10 private equity firms since 2011, while investments in renewable energy companies increased.

Rising oil and gas prices, on the other hand, may assist renewable energy projects to become even more competitive with fossil fuel projects, as higher power prices may help boost demand for new wind or solar projects among utilities and others seeking to protect themselves from market swings.