Private Equity Firms Invest Billions in Fossil Fuels, Analysis Finds

Private equity firms are using the retirement savings of U.S. public sector workers to finance fossil fuel projects that emit over a billion tons of greenhouse gases annually, according to a new analysis.

Since 2010, these firms have invested more than $1 trillion (£750 billion) into the energy sector, often acquiring both older and new fossil fuel projects. Due to exemptions from many financial disclosure requirements, these investments largely remain hidden from the public eye, according to researchers.

The report suggests that, in many instances, these firms are risking the future financial security of workers by investing their retirement savings into assets that could cause significant climate damage.

"Money from public sector workers' pensions—through national, state, and retirement funds—is a key source of capital for private equity energy investments," the report explains. "However, there is minimal transparency for pension fund managers about the potential climate impacts of these investments."

Researchers from the Americans for Financial Reform Education Fund, Global Energy Monitor, and Private Equity Stakeholder Project evaluated the portfolios of 21 private equity firms, which collectively manage $6 trillion in assets.

The analysis revealed that these firms are backing projects responsible for emitting over 1.17 billion tons of CO2 equivalent (tCO2e) annually. The study focused on three specific types of energy investments: upstream oil and gas, fossil gas terminals, and coal plants, meaning the total climate impact of their energy holdings could be even greater.

A scorecard was created to rank each firm based on its exposure to fossil fuel investments, transparency, and alignment with the goal of limiting global warming to 1.5°C above preindustrial levels.

EIG, a private equity firm with 23 fossil fuel companies in its portfolio, ranked last with an F grade. Its upstream operations alone account for over 255 million metric tons of tCO2e per year, the highest among its peers.

The Carlyle Group ranked second in emissions, with an estimated 214 million tCO2e annually. Fossil fuel companies make up more than three-quarters of Carlyle's energy portfolio, leading to the firm receiving a D grade.

The report highlights a growing trend where private equity firms are acquiring older, dirtier assets that larger oil and gas companies are looking to offload, as big banks increasingly view these investments as too risky. Due to loopholes in disclosure regulations and complex corporate structures, some of the most environmentally harmful assets have been transferred to lesser-known investment firms.

Additionally, the cost-cutting measures often employed by private equity firms have exacerbated safety concerns, reliability issues, and environmental violations, according to the report.

A spokesperson for Carlyle responded, saying, "Carlyle is focused on investing in the energy transition, not divesting from it. As one of the first global alternative asset managers to set a net zero target in 2022, we are committed to achieving real emissions reductions across our portfolio, rather than simply transferring high-carbon assets to others."

EIG did not respond to requests for comment.