Dec 9, 2021 - Energy & Environment

Private equity's climate footprint gains focus

Illustration of a close up on a suit and tie with the tie made of a hundred dollar bill.
Illustration: Aïda Amer/Axios

Look for carbon emissions from companies held by private equity to come under increasing scrutiny, a new report finds.

Driving the news: MSCI, the investment research and data firm, is out with its list of trends and topics to watch in the environmental, social and governance (ESG) space.

  • One of them is whether, as critics charge, "privately held companies are becoming an opaque refuge for carbon-intensive fossil-fuel assets," a topic the NYT explored recently.
  • "The jury is out, because the private-equity funds that own these companies aren’t saying much," MSCI adds.

Zoom in: The report provides a rough look at private equity energy investments, noting that from 2010 through November of this year, only 12.4% were related to renewables.

  • Meanwhile, "investments in fossil-fuel-related assets remained robust, even as they have declined in the public universe."
  • However, it also notes that energy overall is a small slice of private equity transactions.

The big picture: "Today, even the largest private equity funds, including those that are publicly listed, have revealed little about the emissions footprint of their portfolio companies," MSCI notes.

  • Still, some companies have started either reporting on the emissions of companies in their portfolio or plan to do so.

What we're watching: Public companies are increasingly facing pressure and requirements to report climate-related risks and whether their activities are aligned with holding global warming in check, MSCI notes.

  • "Managers of private-equity funds, too, may soon face similar requirements," they predict.

Why it matters: The report comes amid growing scrutiny over private equity's climate footprint, especially as major publicly traded oil and energy companies face pressure to divest polluting assets.

Yes, but: While private equity often comes under fire, several firms are also creating major new climate-focused funds and initiatives, such as the TPG Rise Climate Fund that launched this year with a $5.4 billion initial round.

  • One metric: Private equity investments in U.S. renewables hit a new record last year at nearly $24 billion, per the American Investment Council, the industry's advocacy and lobbying arm.
  • "In 2020 alone, private equity backing represented the majority of private investment in renewable energy projects," the group said in a statement.
Data: MSCI; Chart: Jacque Schrag/Axios

The MSCI report includes the chart above about varying levels of disclosure among the top private equity companies as of mid-November.

  • "[O]nly one, EQT Partners, had a meaningful representation of emissions from its portfolio companies, although the Carlyle Group and TPG Capital have indicated that they have started to monitor their portfolio-company emissions," it notes.
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