Apollo Global Management has jumped to the top of a new climate risk scorecard that analyzed the energy holdings of 21 private equity firms overseeing $6 trillion in assets under management. Apollo earned a B in the ranking, compared with a D in 2022, after pledging not to invest in fossil fuels in the company’s latest buyout fund, according to the scorecard.
Apollo has a smaller energy footprint than the other private equity firms analyzed. It owns five energy companies, three of which are in fossil fuels, according to the ranking. But a smaller private equity firm that earned a B — the highest score attained by any of the firms — even bested Apollo by some measures. EQT, a Swedish firm with $267 billion in AUM, has only one fossil fuel company in its portfolio, with five companies focused exclusively on solar and wind energy and one company with gas-fired power generation assets.
The new report was authored by three nonprofit organizations that form the Private Equity Climate Risks research team — the Americans for Financial Reform Education Fund, Global Energy Monitor, and the Private Equity Stakeholder Project.
At least 67 percent of the private equity firms’ energy portfolios were invested in fossil fuels as of July 2024, according to the research report, which was undertaken to help the public understand the effect private equity firms have on the climate.
“The opacity of the private equity industry makes it challenging for investors, regulators, policymakers, and the general public to easily gauge the climate impact these firms have,” according to the report.
The private equity energy portfolios it analyzed are responsible for an estimated, combined total of more than 1.17 gigatons of annual greenhouse gas emissions, the report said.
Those with the worst scores include the Carlyle Group, which earned a D, and EIG Global Energy Partners, which got an F. Some 82 percent of EIG’s energy portfolio — 23 companies — is invested in fossil fuel companies. Although it is small, managing only $24.9 billion, EIG ranked the worst.
The climate activists that authored the report argued that many publicly-traded companies have shed fossil fuels “to avoid regulatory and public pressure or to quickly lighten the sellers’ carbon footprint.” These companies largely operate “out of the public eye and often beyond the oversight of financial and environmental regulators.”
While private equity firms have “vast networks of energy assets,” the lack of visibility into who controls these assets presents “a significant challenge in the fight against climate change,” according to the report. In addition, this leads to “less oversight, reduced incentives for emission reductions, and increased risk-taking, making it difficult to hold these firms accountable.”
The report noted that some private equity firms also use limited liability and partnership structures to protect the firm and executives from liability for negligence or wrongdoing, potentially including environmental liability.
For example, during Carlyle’s partnership with Hilcorp (which ended in 2022), Hilcorp was the largest U.S. emitter of methane, a major greenhouse gas polluter with over 28 times the warming power of CO. The Carlyle Group and its subsidiary, NGP Energy Capital, with $435 billion in AUM, have one of the worst rankings among the 21 firms in this scorecard. It owned 23 fossil fuel companies, representing 77 percent of its energy portfolio, as of July 2024.
“Carlyle remains focused on investing in the energy transition, not divesting from it,” said a Carlyle spokesman. “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 shifting high-carbon assets to others.” According to the scorecard, only 11 percent of its target has been met.
The report also noted that the financial picture for many of the energy companies owned by private equity firms is dire. For example, from 2012 to 2022 at least 60 U.S. coal companies filed for bankruptcy.
The report’s authors argue that “institutional investors with private equity allocations face exacerbated financial risk and attendant climate risk through exposure to private equity’s existing portfolio of polluting assets as well as political and social risks as society seeks to decrease greenhouse gas emissions and move to a clean energy economy.”
The scorecard assessed and ranked the firms’ portfolios by analyzing key fossil fuel assets (energy exploration and production, liquified natural gas, and coal plants) and the assets’ emissions as well as the firms’ progress toward an energy transition based on such factors as disclosure of their fossil fuel exposure, emissions and impact, and their reporting of an energy transition plan.
Though the private equity firms in this scorecard have all released sustainability and ESG reports, and some are signatories to certain industry climate frameworks, the firms’ commitments and targets vary significantly, according to the authors of the report.
Apollo, EQT, and EIG did not respond to a request for comment by press time.
