Private equity firms are set to play a crucial role in the global energy transition, with investments totaling over $25 billion in energy deals already. However, this surge in investments also means that institutional investors, such as pension funds, are increasingly exposed to climate-related financial risks.
A recent report from the Private Equity Climate Risks consortium, which includes Americans for Financial Reform Education Fund, Global Energy Monitor, and the Private Equity Stakeholder Project, highlighted the significant carbon footprint of private equity firms. In 2023 alone, the private equity sector was responsible for nearly 1.2 billion metric tons of carbon dioxide-equivalent emissions, surpassing the emissions of the entire global aviation industry.
The report outlined key demands for private equity firms to align with science-based climate targets, disclose fossil fuel exposure, emissions, and impacts, report energy transition plans, and prioritize climate and environmental justice. By providing detailed information on individual energy companies owned by these firms, investors can better assess the risks and real-world impacts associated with these investments.
Some notable private equity firms, such as Carlyle Group and EIG Global Energy Partners, have come under scrutiny for their high carbon emissions. Carlyle Group, managing $435 billion in assets, announced plans to achieve net zero greenhouse gas emissions across all its portfolios by 2050 but has been accused of excluding certain fossil fuel holdings from its disclosures. On the other hand, EIG Global Energy Partners, with $25 billion in assets under management, received an “F” rating for its high emissions, particularly from fossil fuel companies.
Despite these criticisms, some firms like Blackstone and ArcLight Capital Partners, managing assets worth $1 trillion and $696 billion respectively, have defended their investments in the energy transition. Blackstone emphasized its Emissions Reduction Program and engagement in decarbonization opportunities, while ArcLight did not respond to comments regarding its high investments in fossil fuel companies.
The report also shed light on specific instances where private equity firms’ investments have had adverse effects on communities and the environment. For example, Lightstone Energy, owned by Blackstone and ArcLight, operates the coal-fired Gavin power plant in Ohio, described as “the deadliest coal plant in the United States.” The decision to sell Lightstone to Energy Capital Partners, a firm with $19 billion in assets under management, has raised concerns about the plant’s future and the need for responsible retirement or decarbonization.
Furthermore, the report highlighted issues related to workforce management in the energy sector, particularly concerning outsourced labor. Tradesmen International, previously owned by Blackstone, faced multiple citations from OSHA and allegations of anti-union conduct, raising questions about worker safety and compliance practices.
Private equity firms’ involvement in renewable energy projects has also faced criticism, as seen in the case of SOLV Energy, acquired by American Securities. The company has been accused of underpaying workers and retaliating against those attempting to organize, leading to OSHA citations and workforce-related controversies.
These findings underscore the risks associated with private equity investments in the energy transition and the need for greater transparency and accountability in the sector. While some firms have taken steps to address climate concerns, there is a growing call for more stringent regulations and oversight to ensure that investments align with sustainable and responsible practices.