Private equity’s carbon footprint exceeds global aviation industry
Private equity firms with a focus on the energy sector are responsible for more than one gigatonne of emissions and are accused of being ill prepared for the energy transition
Pension funds and other institutional investors across the globe have gradually started to branch out into private markets, in a bid to enhance their returns and contribute more directly to the energy transition. But all that glitters is not gold, with increased allocations to private markets often comes a lack of transparency on the climate impact of those assets. While there are notable exceptions, many private market managers tend to limit disclosures of their carbon footprint which is often significant.
Indeed, new research among 21 of the world’s largest private equity firms collectively managing some $6trn in assets shows that they are responsible for 1.17 billion metric tons CO2 equivalent of emissions a year in upstream oil and gas, liquefied natural gas (LNG) terminals, and coal-fired power plants.
These are the findings of this year’s Private Equity Climate Risk Scorecard produced by three NGO’s Americans for Financial Reform, Global Energy Monitor and the Private Equity Stakeholder project.
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The Scorecard assessed private equity companies based on three key criteria, their alignment with decarbonisation targets, the percentage of fossil fuel companies in their portfolios as well as an estimate of their overall carbon dioxide equivalent (TCO2E) emissions.
The report found that last year alone, the 21 private equity firms in question were responsible for more than one giga tonne of emissions, exceeding the carbon footprint of the global aviation industry (as of 2019), it is also over three times as much as from the energy used to power all the homes in America, researchers said.
“Private equity firms and their executives are making billions by investing public employees’ retirement money into planet-destroying fossil fuel assets,” said Amanda Mendoza, senior climate research and campaign coordinator of the Private Equity Stakeholder Project. “These billion-dollar companies make their profits while largely avoiding liability for the damages their fossil fuel investing causes frontline communities. At the end of the day, the price we pay for private equity’s greed is our health and livelihoods, for ourselves and generations to come.”
Virtually all of the firms in question focus on the energy sector. Their websites tend to display windfarms and solar panels and indeed, they do often invest in renewable energy infrastructure. However, the Scorecard reveals that for all but 3 of the firms in the report, fossil fuels still account for the majority of assets.
EIG Global Energy Partners which controls $23.5bn in assets, received the worst grade, an F, with 82% of its energy portfolio made up of fossil fuel companies and an estimated 271.8 million tons of emissions that contribute to climate change.
Researchers also accuse some firms of deliberately understating their carbon footprint. For example, private equity giant KKR reported only 14,342 metric tons of greenhouse gas emissions, despite holding 188 fossil fuel assets across 21 countries. Authors of the Climate Scorecard suggest that the real climate impact of its entire portfolio is estimated at 6,500 times higher than that, based on research found in April 2024. KKR and other firms ranked with an F or D have been approached by Net Zero Investor for comment.
A spokesperson for KKR challenged the reports findings by highlighting the firm's investments in renewables: "PESP exists to attack the private markets industry and regularly presents misleading data and arguments that support its agenda. A just energy transition will require massive investment in green energy and decarbonizing high emitters. KKR is contributing to both, having deployed nearly $40 billion investing in renewables, energy efficiency and green energy distribution, and working with companies with high emissions – including those named in the report – to develop net zero-aligned decarbonization plans. We also believe that focusing solely on GHG emissions as a key performance indicator is not enough. Even as improvements are made in an effort to reduce GHG emissions in the current portfolio, certain of our businesses and our AUM continue to grow. This means portfolio-wide emissions may increase in the short- and medium-term as we work to support the implementation of business-relevant decarbonization plans.”
The Institutional Investors Group on Climate Change has issued a guidance on net zero stewardship for GPs and LPs last year. It recommends among others that LPs include the carbon footprint of their private equity holdings in their overall carbon estimates. It also advises LPs to set targets for investee companies to increase the amount of invested capital allocated towards climate solutions for the milestone years.
