Over the past two years, Wall Street banks, E&P companies and investors have faced increasing pressure to divest from fossil fuels. Last year, BlackRock Inc. (NYSE:BLK), the world’s largest asset manager with $10 trillion in assets under management (AUM), has sent shockwaves through the fossil fuel sector after pledging to double down on climate activism supporting more shareholder resolutions on climate change and social issues.
Also last year, New York City Mayor Bill de Blasio and Comptroller Scott M. Stringer rocked the industry after announcing that the city’s $226 billion pension fund plans to divest majority of its fossil fuel investments over the next five years and also severed ties with other companies that have contributed to global warming.
Shortly after, Rockefeller Brothers Funda family foundation founded on one of the biggest oil fortunes in the world, followed suit by announcing that it abandon its oil and gas investments and stop making new investments in the future. The $5 billion foundation was originally created from oil money in the 19th century by the son of John D. Rockefeller. standard oil celebrity.
But Russia’s war in Ukraine and the global energy crisis have completely reversed this scenario, with the oil and gas sectors now attracting a lot of money, especially from private investors. According Preqin Dataso far this year, private equity funds around the world have raised a total of $27.9 billion for oil and gas investments, compared to $19.4 billion raised for all of 2021 . “The fundraising environment for oil and gas is better than it has been for the past five years. It’s all a juggling act in the sense that it’s relative to other sectors and overall fundraising is down,Fraser Van Rensburg, New York-based co-founder and managing partner of investment agency Asante Capital Group, told Pensions & Investments.
Climate resolutions fail in the face of big bucks
In another surprising development, while some Wall Street and European banks have cut funding for fossil fuels, the massive private equity industry is happily taking their place. According to a recent analysis from the Private Equity Stakeholder Project and the Americans for Financial Reform Education Fund (AFREF), the eight largest buyout firms have invested nearly as much money in coal, oil and gas as the big bank.
According to nonprofit groups, private equity firms, which include Global Apollo Management, Blackstone Group, Brookfield Asset Management, Carlyle Group, KKR and Pincus de Warburgcollectively 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 deployed to drill, fracture, transport, store, refine fossil fuels and generate energy, stands in stark contrast to what climate scientists and international policymakers have called to align our trajectory. on the 1.5 degree Celsius warming scenario“, declares a report co-signed by major climate groups including Greenpeace, Natural Resources Defense Project, Sierra Club and Sunrise Project.
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“These polluting assets are moving from the public markets, where there is greater regulatory and public scrutiny, into the shadows of our financial industry, where private equity typically operates,Riddhi Mehta-Neugebauer, research director at the Private Equity Stakeholder Project, told CBS News.
“Private equity firms emerge as pollution financiers of last resort“, Oscar Valdés Viera, director of research at AFREF, told CBS MoneyWatch.
The report notes that the Blackstone Group is not only one of the largest private equity funds in the world, but is 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-powered cars, according to PESP calculations. The report reveals that Carlyle Group still retains $24 billion in carbon-based power through NGP Group, in which it has a stake, despite starting this year pledge to have net zero emissions by 2050. Indeed, the report notes that 60% of Carlyle’s earnings in the first half of this year came from NGP.
It will be much harder to persuade these private equity firms to stop funding fossil fuel projects if this year’s events on the climate front are any indication.
Last April, shareholders of Citigroup, Wells Fargo, Bank of America and Goldman Sachs passed resolutions recommending companies stop all additional funding for fossil fuel projects. All of the resolutions failed spectacularly, managing to garner just over 10% of the vote. In May, almost two-thirds of investors in ExxonMobil (NYSE:XOM) and Chevron (NYSE: CVX) rejected proposals for the oil giants to align their climate strategies with the Paris agreement.
It was another resounding defeat for climate activist investors, who are having a less successful proxy season this year than in 2021 as fossil fuel companies reap record profits fueled by war in Ukraine.
Last year, activist investor Engine No. 1 managed to install three administrators to Exxon’s board in a bid to push the energy giant to reduce its carbon footprint. This was despite the company only owning 0.02% of Exxon stock.
But these companies, their shareholders, and private equity firms are simply not going to pass up an opportunity to raise billions of dollars from the oil and gas boom. It’s a sentiment that was present in comments from a Carlyle executive who disagreed with environmentalists’ timetable for how quickly fossil fuel power plants can be retired.
“Carlyle’s approach of investing in, not divesting from, the energy transition is different, based on the pursuit of real emissions reductions within portfolio companies over the long term. To work towards meaningful progress on climate change, we will continue to partner with companies across all energy sectors to collect better data and strive for clear progress on reducing carbon emissions. greenhouse gas,“, the company said in a statement. The fund says it focuses on energy security as much as sustainability, which involves keeping natural gas plants online longer than originally planned.
In the meantime, there is a liability 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 investment funds on behalf of large investors, including public pension plans, making them more resilient to public criticism.
By Alex Kimani for Oilprice.com