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Private Equity Is Quietly Keeping Fossil Fuel Companies in Business

Vulture funds have spent $1.1 trillion snapping up energy companies over the past decade.

Spencer Platt/Getty Images
An oil well in Garden City, Texas

Even the worst vultures on Wall Street want you to think they’ve grown a conscience, realizing fossil fuel investments no longer make for good P.R. Private equity giants have been eager to tout their increasing support for sustainability, like embattled asset manager KKR’s $1.3 billion Global Impact Fund.

But according to a new report from the Private Equity Stakeholder Project, actual private equity investments frequently don’t align with their climate-friendly public posturing. Of the 34 companies acquired by KKR’s energy portfolio, PESP found that 82 percent are fossil fuel producers. The report found that, overall, the 10 largest private equity firms have invested $1.1 trillion in energy since 2010, double the market value of Exxon, Chevron, and Royal Dutch Shell combined. Eighty percent of those investments were in fossil fuels. “Clearly that narrative is very different from the narrative that a lot of these private equity firms tout,” Riddhi Mehta-Neugebauer, a co-author of the PESP report, told me by phone.

In July, for instance, Brookfield Asset Management announced that it had raised $7 billion for a Global Transition Fund “dedicated to accelerating the transition to a net-zero economy.” The very same day, Brookfield succeeded in a $6.8 billion hostile takeover of Inter Pipeline Ltd., a Canadian company that ships oil from the Albertan tar sands. Together, Brookfield and Oaktree Capital Management—another private equity firm it owns a controlling stake in—have acquired 40 fossil fuel companies and 23 renewable energy companies since 2010.

Blackstone CEO Stephen Schwarzman is scheduled to attend COP 26, this year’s hotly anticipated United Nation climate talks. “There’s little doubt that something very profound appears to be going on, and it ought to be addressed,” Schwarzman told the World Economic Forum in January 2020. But his company, the world’s largest private equity firm, with $684 billion in assets under management, acquired 25 fossil fuel companies in everything from deep-sea drilling to coal power plants to pipelines and natural gas export terminals. Sixty-four percent of people living near Blackstone’s greenhouse gas–emitting facilities are people of color.

George W. Bush’s former Treasury Secretary Hank Paulson is heading up the private equity firm TPG’s Rise Climate fund, which announced it had raised $5.4 of its $7 billion goal for “clean energy, enabling solutions, decarbonized transport, greening industrials and agriculture and natural solutions,” according to Bloomberg. TPG also took a controlling stake in four fossil fuel companies over the last 11 years, including the Indonesian coal producer PT Delta Dunia Makmur.

Much of the information in the report comes from Pitchbook, a company that compiles data on private market transactions. Mehta-Neugebauer says she and co-author Alyssa Giachino spent months looking through news reports and Securities and Exchange Commission filings to fill in the gaps in what was available on Pitchbook. Requirements are scant for private equity firms, not just on climate risks but on their operations more generally. “We know this list is an underestimate,” says Mehta-Neugebauer. “There’s no way for us to have a comprehensive understanding of what exactly public equity owns in the energy space, because it isn’t disclosed.”

What stands out about the report is just how ordinary these sorts of ownership structures are. In the years since the Great Recession, distressed asset investors have become a ubiquitous part of the economy’s metabolism—digesting everything from beloved retail chains to fossil fuel producers to the distressed debt of climate-vulnerable governments. That’s in large part because large institutional investors, including pension funds, have been looking for the sorts of steady yields once provided by Treasury bonds. As more heavily scrutinized fossil fuel companies start to face pressure from climate activists, investors, and lawmakers, private equity stands ready to feast on their leftovers.

Often teachers, nurses, and public-sector employee pension funds are helping them do it. Their retirements—among other pools of capital—are buying up both the unwanted assets of bigger companies like Exxon and Chevron and also relatively unknown independent producers that struggle to weather the storms of energy market volatility. With trillions already flowing into a vaguely defined set of sustainable financial products, private equity firms are eager to profit off both ends of the green finance trend: offering new products to climate-conscious investors while buying up the fossil fuel assets being wound down as times change and markets shift.

Some companies do voluntarily disclose certain climate risks to the SEC on Form ADV, though those generally describe the dangers climate change poses to the company—not the risks the company’s own assets pose to the climate. “Reductions in precipitation levels, wind or sunlight could materially adversely affect the revenues and cash flows of renewable energy-related assets that depend on the capture of waterflow, wind or sunlight to derive revenues,” KKR wrote in one such filing. “If such reductions are significant, any such assets could be rendered inoperable. Conversely, significant increases in precipitation or wind velocity could cause damage to such assets or create periods when such assets are not able to function.” A firm that KKR has a controlling stake in, meanwhile, finished acquiring all of ConocoPhilips’s oil and gas assets in Wyoming this year.

Often, private equity ownership can be hard to track. Earlier this week, Bloomberg’s Zachary R. Mider and Rachel Adams-Heard reported on a little-known firm called Diversified Energy. The company is the largest well owner in the country, with a specialty for snapping up old and poor-producing oil and gas rigs that—as Mider and Adams-Heard found—can spew out alarming amounts of methane, a greenhouse gas roughly 80 times as potent as carbon dioxide in the near term. Under little scrutiny, Diversified can keep wells online for years and avoid the cost of having to plug them. One West Virginia Diversified well produced only a “trickle of saleable gas” in 2020, but was “leaking six times what it produced for sale, making its gas a far more potent warming agent than coal.” Last week, Oaktree helped Diversified acquire $419 million worth of additional upstream assets in Oklahoma and expand its “empire of dying wells” well beyond Appalachia. As part of a partnership moving forward, Oaktree will work with Diversified to “jointly identify and fund” additional fossil fuel–producing sites.

In a letter to the SEC, PESP is recommending that the agency incorporate more climate-risk disclosure questions and requirements into the disclosure documents that private equity firms already have to fill out. “It’s hard to just look at their [Environmental, Social, and Governance] reports because we knew that wasn’t the full story,” Mehta-Neugebauer said. “Regulators, policymakers, and stakeholders need to have a better sense of what the full story is.”