Uncovering the Fossil Fuel Footprint of Private Equity: A Troubling Trend Fueling Climate Change

The financial industry's role in the climate crisis extends far beyond the well-documented actions of global banks. A new study reveals that the opaque world of private equity, overseeing more than $8 trillion in assets worldwide, is also heavily invested in carbon-emitting fossil fuels, creating greenhouse gas emissions equivalent to the entire aviation industry. This troubling trend, driven in part by the surging demand for energy-hungry data centers to support artificial intelligence, is exposing investors to significant financial, social, and political risks.

Uncovering the Fossil Fuel Footprint of Private Equity

The Staggering Investments in Fossil Fuels

The top 21 private equity firms, including industry giants like Blackstone and KKR, have invested roughly $1 trillion in fossil-fuel energy companies since 2010. This massive influx of capital has fueled the continued production, distribution, and marketing of coal, oil, and natural gas, contributing to the greenhouse gas emissions that drive climate change. The report by Private Equity Climate Risks, a nonprofit consortium, found that two-thirds of the energy companies in private equity portfolios are focused on oil fields, pipelines, and liquefied natural gas terminals, further entrenching the industry's reliance on fossil fuels.

The Emissions Equivalent of a Nation

The study's findings are staggering. The 21 private equity firms analyzed are responsible for nearly 1.3 billion tons of greenhouse gas emissions per year, more than three times the energy used to power all the homes in the United States. This level of emissions is on par with the devastating Canadian wildfires of 2023, underscoring the significant environmental impact of private equity's fossil fuel investments.

Dodging the Spotlight

While banks and oil majors face increasing scrutiny and pressure from shareholders over their climate risks and emissions, private equity firms have largely managed to evade the spotlight. This lack of transparency and oversight has allowed these firms to pour billions into fossil fuels, pushing the world further away from a sustainable future. The report's authors argue that private equity asset managers have repeatedly acquired these fossil fuel assets and operated them "out of the public eye and often beyond the oversight of financial and environmental regulators."

The Financial Risks of Fossil Fuel Investments

The financial risks associated with investing in fossil fuel companies are growing. From 2012 to 2022, at least 60 US coal companies filed for bankruptcy, and the methane gas, or "natural gas," industry faces projected demand declines in Europe and a global oversupply of liquefied natural gas. This trend is exposing private equity firms and their investors, including pension funds for teachers, firefighters, and other public sector workers, to significant financial, social, and political risks.

The Scorecard: Grading Private Equity's Climate Performance

The report's "2024 Private Equity Climate Risks Scorecard" provides a detailed assessment of the 21 private equity firms' fossil fuel investments and emissions. Topping the list with an 'F' grade is EIG Global Energy Partners, with 82% of its energy portfolio made up of fossil fuel companies and an estimated 271.8 million tons of emissions. Blackstone, the world's largest private equity firm, also received a poor grade, with 85% of its energy portfolio concentrated on fossil fuels.

The Greenwashing Dilemma

While some private equity firms have invested in clean energy, the report highlights a concerning trend of "greenwashing." Many firms are investing in and promoting their clean energy initiatives while simultaneously holding or profiting from the sale of fossil fuel investments. This dichotomy raises questions about the industry's true commitment to the energy transition and the mitigation of climate change.

The AI Boom and the Thirst for Energy

The report also sheds light on the role of the AI boom in driving private equity's continued investment in fossil fuels. Private equity accounts for up to 90% of all investment in data centers, which are largely used to train AI-driven large language models. This insatiable demand for energy-intensive computing power has led private equity firms to strategically acquire fossil fuel assets, as they believe intermittent renewable energy sources cannot fulfill the energy requirements of these data centers alone.

A Call to Action: Accountability and Transparency

The Scorecard report calls for private equity firms to adopt a set of five standards for climate action, including aligning with science-based climate targets, disclosing fossil fuel exposure and emissions, reporting a portfolio-wide energy transition plan, integrating climate and environmental justice, and providing transparency on political spending and climate lobbying. The report argues that these measures are essential to hold the industry accountable and drive meaningful progress towards a sustainable future.