Over the past couple of years, Wall Street banks, E&P companies and investors have faced mounting pressure to disinvest in fossil fuels. Last year, BlackRock Inc. (NYSE: BLK), the world’s largest asset manager with $10 trillion in assets under management (AUM), sent shockwaves through the fossil fuel sector after it vowed to double down on climate activism by backing more shareholder resolutions on climate change and social issues.
Also last year, New York City’s Mayor Bill de Blasio and Comptroller Scott M. Stringer jolted the sector after announcing that the city’s $226B pension fund plans to divest majority 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 thereafter, Rockefeller Brothers Fund, a family foundation built on one of the world’s biggest oil fortunes, followed suit by announcing that it would ditch its oil and gas investments and cease making any new investments going forward. The $5-billion foundation was initially carved from oil money in the 19th century by John D. Rockefeller’s son of Standard Oil fame.
But Russia’s war in Ukraine and the global energy crisis have completely flipped that playbook, with oil and gas sectors now attracting big money especially from private investors. According to Preqin data, so far this year, private capital funds worldwide have raised a combined $27.9 billion for oil and gas investments compared with $19.4 billion raised in all of 2021. "The fundraising environment for oil and gas is better than it was in the last five years. It's all a juggling act in the sense that it is relative to other sectors and overall fundraising is down," Fraser Van Rensburg, New York-based co-founder and managing partner of placement agency Asante Capital Group, has told Pensions & Investments.
Climate Resolutions Failing in the Face of Big Money
In another surprising development, whereas some Wall Street and European banks have cut financing to fossil fuel, the massive private equity industry is happily taking their place. According to a recent analysis from the Private Equity Stakeholder Project and Americans for Financial Reform Education Fund (AFREF), the eight largest buyout firms have put nearly as much money into coal, oil and gas as the big bank.
According to the nonprofit groups, the PE firms, which include Apollo Global Management, Blackstone Group, Brookfield Asset Management, Carlyle Group, KKR and Warburg Pincus, collectively oversee $216 billion worth of fossil-fuel assets--on par with the amount of money that big banks put into fossil fuels last year.
Another surprising find: the 10 largest private equity funds have 80% of their energy investments in fossil fuels.
"The billions of dollars private equity firms have deployed to drill, frack, transport, store, refine fossil fuels and generate energy, stand in stark contrast to what climate scientists and international policymakers have called upon to align our trajectory to the 1.5 degrees Celsius warming scenario," states a report cosigned by major climate groups including Greenpeace, Natural Resources Defense Project, Sierra Club and the Sunrise Project.
"These polluting assets are shifting from the public markets, where there is greater amount of regulatory and public scrutiny, into the shadows of our financial industry, where private equity usually operates," Riddhi Mehta-Neugebauer, research director at the Private Equity Stakeholder Project, has told CBS News.
"Private equity firms are emerging as pollution financiers of last resort," Oscar Valdés Viera, research manager at AFREF, has told CBS MoneyWatch.
The report notes that the Blackstone Group is not only one of the world's largest private equity funds 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-burning cars, according to calculations by PESP. The report reveals that Carlyle Group still maintains $24 billion in carbon-based energy through NGP Group, in which it holds a stake, despite earlier this year pledging to have net-zero emissions by 2050. Indeed, the report notes that 60% of Carlyle's profit in the first half of this year came from NGP.
It’s going to be a lot harder to persuade these PE firms to stop financing fossil fuel projects if this year’s happenings on the climate front are any indication.
Back 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 spectacularly, managing to garner just over 10% of the vote. In May, nearly 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 yet another resounding defeat for climate activist investors, who are having a less successful proxy season this year than in 2021, as fossil fuel firms reap record profits fueled by the war in Ukraine.
Just last year, activist investor Engine No. 1 managed to install three directors on the board of Exxon with the goal of pushing the energy giant to reduce its carbon footprint. That was despite the firm only owning 0.02 percent of Exxon’s shares.
But these companies, their shareholders and PE firms simply are not going to pass up an opportunity to reap billions of dollars from the oil and gas boom. It’s a sentiment that was present in commentary by a Carlyle executive who disagreed with the environmentalists' timeline on how quickly it's possible to retire fossil-fuel plants.
"Carlyle's approach to invest in, not divest from, the energy transition is a different one, grounded in seeking real emissions reductions within portfolio companies over the long term. In order 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 reducing greenhouse gas emissions," the company said in a statement. The fund says it’s focused on energy security as much as sustainability, which means keeping natural-gas plants online longer than initially planned.
Meanwhile, there’s an issue of accountability. Whereas banks and oil firms are accountable to their shareholders and to the public, private equity firms are only accountable to their limited partners. PE firms raise and manage investment funds on behalf of large investors, including public pension plans thus making them more resistant to public criticism.
By Alex Kimani for Oilprice.com