In the past two years, Wall Street banks, exploration and production companies and investors have faced increasing pressure to divest from fossil fuels. Last year, Black Rock Inc. (NYSE:BLK), the world’s largest asset manager with $10 trillion in assets under management (AUM), shocked the fossil fuel sector after it promised to double down on climate activism by backing more shareholder resolutions on climate change. and social problems.
Also last year, New York City Mayor Bill de Blasio and Comptroller Scott M. Stringer shook up the industry after announcing that the city’s $226 billion pension fund plans to divest most of its fossil fuel investments over the next five years and also cut ties with other companies that have been contributing to global warming.
Shortly after, Rockefeller Brothers Funda family foundation built on one of the world’s largest oil fortunes, did the same by announcing that get rid of your oil and gas investments and stop making new investments in the future. The $5 billion foundation was initially carved out of oil money in the 19th century by the son of John D. Rockefeller. standard oil fame.
But Russia’s war in Ukraine and the global energy crisis have completely turned that playbook on its head, with the oil and gas sectors now attracting big money, especially from private investors. According to preqin dataSo far this year, private equity funds around the world have raised a combined $27.9 billion for oil and gas investments compared to $19.4 billion raised in all of 2021. “The fundraising environment for oil and gas is better than it has been in the last five years. It’s all a juggling act in the sense that it’s relative to other sectors and fundraising in general is down,Fraser Van Rensburg, New York-based co-founder and managing partner of placement agency Asante Capital Group, told Pensions & Investments.
Failing climate resolutions in the face of big money
In another surprising development, While some Wall Street and European banks have cut funding for fossil fuels, the huge private equity industry is happily taking its place. According to a recent analysis of the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF), the eight largest buyout firms have invested almost as much money in coal, oil and gas as the big bank.
According to nonprofit groups, PE firms, which include Apollo Global Management, Blackstone Group, Brookfield Asset Management, Carlyle Group, KKR Y Warburg pincusthey collectively oversee $216 billion in fossil fuel assets, on par with the amount of money big banks invested in fossil fuels last year.
Another surprising finding: the 10 largest private equity funds have 80% of their energy investments in fossil fuels.
“The billions of dollars that private equity firms have poured into drilling, fracturing, transporting, storing, refining fossil fuels, and generating power stands in stark contrast to what climate scientists and international policymakers have called for to align our trajectory with the 1.5 degrees Celsius warming scenario.“says a report signed by major climate groups including Greenpeace, the Natural Resources Defense Project, the Sierra Club, and the Sunrise Project.
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“These polluting assets are moving from the public markets, where there is a greater amount of public and regulatory scrutiny, into the shadows of our financial industry, where private capital normally operates.Riddhi Mehta-Neugebauer, director of research for the Private Equity Stakeholders Project, told CBS News.
“Private equity firms are emerging as pollution financiers of last resortOscar Valdés Viera, research manager at AFREF, told CBS MoneyWatch.
The report notes that Blackstone Group is not only one of the largest private equity funds in the world, but also one of the worst polluters. In 2020, Blackstone-backed power plants generated 18.1 million metric tons of carbon dioxide emissions, the same as 4 million gasoline-burning cars, according to PESP calculations. The report reveals that Carlyle Group it still holds $24bn worth of carbon-based energy through NGP Group, in which it has a stake, despite earlier this year promising have net zero emissions by 2050. In fact, the report notes that 60% of Carlyle’s profits in the first half of this year came from NGP.
It’s going to be much harder to persuade these PE companies to stop funding fossil fuel projects if this year’s developments on the climate front are any indication.
In April, shareholders at Citigroup, Wells Fargo, Bank of America and Goldman Sachs voted on resolutions recommending the companies stop any additional financing for fossil fuel projects. All the resolutions failed miserably, managing to obtain just over 10% of the votes. In May, nearly two-thirds of investors in exxonmobile (New York Stock Exchange: XOM) and Chevron (New York Stock Exchange: CVX) rejected proposals that the oil giants align their climate strategies with the Paris agreement.
It was another resounding defeat for climate activist investors, who are having a less successful rendering season this year than in 2021, as fossil fuel companies make record profits fueled by the war in Ukraine.
Just last year, activist investor Engine No. 1 managed to install three directors on Exxon’s board with the aim of pushing the energy giant to reduce its carbon footprint. That was despite the fact that the company only owned 0.02 percent of Exxon stock.
But these companies, their shareholders and PE companies are simply not going to pass up the opportunity to reap billions of dollars from the oil and gas boom. It’s a sentiment that was present in a Carlyle executive’s comment that he disagreed with the environmentalists’ timetable for how quickly it’s possible to phase out fossil fuel plants.
“Carlyle’s approach to invest, not divest, in the energy transition is different, based on seeking real emissions reductions within portfolio companies over the long term. To work toward meaningful progress on climate change, we will continue to partner with companies across the energy spectrum to collect better data and strive for clear progress in reducing greenhouse gas emissions.“, the company said in a statement. The fund says it is focused on energy security as well as sustainability, which means keeping natural gas plants running longer than initially planned.
Meanwhile, there is an accountability issue. While banks and oil companies are accountable to their shareholders and the public, private equity firms are only accountable to their limited partners. Private equity firms raise and manage mutual funds on behalf of large investors, including public pension plans, making them more resistant to public criticism.
By Alex Kimani for Oilprice.com
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