Responsible oil and natural gas production in the United States is under attack from “Keep It In The Ground” activist groups who are funded by foreign money and have published a deeply flawed report attempting to pressure private equity investors to divest assets from the energy sector.
The report, dubbed the “Private Equity Climate Risks Scorecard,” was authored by the Private Equity Stakeholder Project (PESP) and Americans for Financial Reform Education Fund (AFREF) claims to offer “details on eight of the largest private equity firms in the world and their collective holdings of around $216 billion in energy and fossil fuels,” but deploys questionable methodology and is clearly designed to undercut energy financing, with dire effects on the American economy.
Report Backed by the Usual Suspects
PESP particularly has received significant amounts of funding from wealthy foundations that fund anti-energy efforts from climate litigation to pressure campaigns against advertising and public relations firms.
Most notably, the Denmark-based KR Foundation awarded a $255,283 grant to PESP to engage in activism just like this report to undermine investments in the U.S. energy sector. The KR Foundation’s website states:
“PESP and the collaborating NGOs will engage with the investors and the private fund managers to get them to shift their portfolios away from fossil fuels.”
The report is endorsed by major “Keep It In the Ground” groups like the Natural Resources Defense Council, Sierra Club, Friends of the Earth, Greenpeace, and Public Citizen – all of which have had a long history of advocating for an immediate end to fossil fuels regardless of the consequences.
In the report, climate activists gave failing grades to well-known names like the Carlyle Group, KKR and Blackstone. The methodology of this report appears to consist of searching for how many energy companies these firms hold combined with an assessment of pledges around net zero emissions or other sustainability metrics. They then tabulate all the emissions associated with a given company or operation and blame the private equity firm for all of them, regardless of the size of the investment or when the investment was made.
The report also notes in passing, but does not take into consideration, changes that these firms have announced in their future investing strategy. The idea that private equity is not listening to their investors when it comes to energy investing is simply untrue. Universities, pensions, and endowments by and large want to act on climate while balancing their fiduciary duties to maximize returns.
A New Vehicle for the Same Climate “Demands”
Rather than a tool for dialogue or actionable change, this report is another vehicle for promoting the activists’ usual “climate demands.”
The report demands that private equity firms immediately cease investments in fossil fuel expansion and retire all fossil fuel energy assets by 2030. And yet, if they want these firms to solve climate change by selling their energy holdings, we’re left with the question: To whom? And how does selling an asset to another investor actually address the issue? The report doesn’t provide any solutions.
The report also calls for private equity firms to disclose all use of voluntary carbon offsets and carbon capture, utilization, and storage (CCUS) technologies in their portfolios. Taking things a step further, the report calls for funds to reduce investment and use of carbon capture technologies, even though the International Energy Agency executive director has called CCUS “critical for ensuring our transitions to clean energy are secure and sustainable.”
It also demands that these private companies disclose everything from “analyses under various climate warming scenarios and decarbonization timelines” to “political spending and climate lobbying at asset manager, portfolio company, and trade association level” to “transparency on alignment with global standards on responsible corporate climate lobbying.” These proposed disclosures go far beyond the climate disclosure rules that Securities and Exchange Commission has proposed for public companies.
Ultimately, the goal is to blacklist fossil fuel development from investment. Alongside the divestment campaign and fringe shareholder proposals, this report only serves to decrease investor confidence in the industry. This only hurst consumers and exacerbates the current energy crisis.
Earlier this year, responding to the Dallas Fed Energy Survey, an executive for an exploration and production company summarized the current state of affairs for energy companies seeking investment:
“Investors are still not coming back to the well, so to speak. Private investors like endowments and foundations are structurally gone for good, and it is actually different this time.”
The irony is that new oil and natural gas infrastructure has never been more necessary. The threat of natural gas shortages means that countries like Germany, which has been at the forefront of renewable energy adoption and investment, are restarting coal plants and considering a full government takeover of their gas companies as their energy market collapses and poses a threat to residents’ economic and physical security heading into the winter.
The report makes clear that the authors fundamentally oppose investment in any oil or natural gas assets, despite repeated calls from the Biden administration for increased oil and gas domestic production. But the report also indicates that its backers oppose – or at the very least, misunderstand – how investment markets work. The press release for the report says:
“Troublingly, private equity works mostly beyond the oversight of financial regulators because private markets are exempt from most financial disclosures.” (Emphasis added.)
Private Equity Stakeholder Project and Americans for Financial Reform Education Fund aren’t just opposed to responsible energy development, they’re also opposed to a robust, law-abiding, and dynamic investment market.
The scorecard isn’t a serious tool for determining sustainability practices or a guide for investing. In fact, it does not take into account at all what, if any, strides these portfolio companies have made under PE ownership or if these firms are bringing expertise and know-how to improve sustainability across operations.
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