Amid increasing calls to halt investments in fossil fuel companies and promote decarbonization, numerous private equity firms are still channeling billions into the oil and gas industry. A recent report reveals that many of these firms are exaggerating their commitments to a green transition while engaging in investments that undermine environmental sustainability.
The report, compiled by Americans for Financial Reform Education Fund (AFREF), Global Energy Monitor, and the Private Equity Stakeholder Project, highlights the troubling trend of private equity firms utilizing public sector workers’ retirement savings to fund fossil fuel initiatives. Since 2010, these firms have invested over $1 trillion in the energy sector, predominantly backing both existing and new fossil fuel projects. Due to various exemptions from financial disclosure requirements, these firms can operate with minimal public awareness regarding their funding choices. To combat this lack of transparency, the organizations have developed a private equity energy tracker to monitor the investments of 21 key firms.
A significant concern raised in the report is the impact of these investments on public sector workers. “Public sector workers’ money, through national, state, and retirement pensions, provides much of the capital for private equity firms’ energy investments, but there is limited disclosure to the pension fund managers that the deferred earnings of their beneficiaries have potential climate impacts,” the report states.
The analysis examined the investments of 21 private equity firms managing a combined total of $6 trillion in assets. Alarmingly, all 21 firms were found to finance fossil fuel projects responsible for emitting over 1.17 billion tonnes of carbon dioxide equivalent annually—surpassing the pre-pandemic aviation industry’s global emissions. Collectively, these firms funded at least 272 fossil fuel companies out of a total of 404 energy companies, holding stakes in some of the most polluting fossil fuel projects across North America. Moreover, these firms have extended their financing activities to at least 40 countries, including high-income nations and emerging economies such as India and Brazil.
Data for the report was gathered from financial data services, corporate websites, press releases, and news articles, focusing primarily on investments in upstream oil and gas, fossil gas terminals, and coal plants. Among the firms assessed, EIG received the lowest score, earning an ‘F grade’ for having 23 fossil fuel companies in its portfolio, which contribute 255 million metric tonnes of emissions per year.
The findings suggest that many private equity firms are investing in outdated and polluting fossil fuel projects that larger oil and gas companies are eager to divest. As major banks increasingly view these investments as high-risk, private equity firms have stepped in to fill the void. However, they are not mandated to disclose their investments due to regulatory loopholes and the complex structures of their operations. Approximately 67% of the combined energy portfolios of the 21 firms are tied to fossil fuels, even as many firms publicly advocate for a green energy transition and adhere to rigorous Environmental, Social, and Governance (ESG) standards.
Dustin Duong, a research associate at AFREF, commented, “We knew that private equity has been secretly expanding into the global energy sector, but this data has been truly eye-opening.” He added, “It punctures their claim that they understand the urgency of the energy transition and the need to pivot to investments that can help solve the climate crisis. Until they stop supporting polluting industries, their claims of protecting communities—especially communities of color and low-income neighborhoods—will always ring hollow.”
Additionally, research from S&P Global indicates that private equity and venture capital investments in the oil and natural gas sector have already surpassed $6.61 billion in value between January and mid-August of this year. This trend positions private equity-backed fossil fuel investments on track to achieve their highest value since 2020, with 47 announced investments in the oil and gas sector during this timeframe, primarily concentrated in the U.S. and Canada.
The increasing investment in fossil fuels correlates with a growing demand for energy to support emerging technologies, particularly artificial intelligence (AI), which cannot be adequately powered by renewable sources alone.
Recent investigations indicate that private equity firms are investing even more in fossil fuels than previously realized. Due to reporting loopholes, many firms are not fully disclosing their oil, gas, and coal investments or the associated risks. Furthermore, the volume of reported fossil fuel investments by these firms is returning to pre-pandemic levels, paralleling the rising demand for energy-intensive technologies like AI. This financing trend contradicts government objectives aimed at decarbonizing the economy and accelerating a green transition.
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