Report Sparks Questions Over Transparency Into Private Equity Holdings

Two non-profit watchdogs say a dispute over its joint oil and gas scorecard illustrates the lack of readily available information on a huge industry.

Illustration by II

Illustration by II

Some of the world’s largest private equity firms are disputing the findings of a new report that grades them on their oil and gas holdings. The conflict is a window into how difficult it can be to get indisputable and timely information about private equity funds and their investments.

Last week, the Private Equity Stakeholder Project in conjunction with Americans for Financial Reform Education Fund, two nonprofit organizations, released a “private equity scorecard,” a report that listed and graded the top eight private equity buyout firms invested in oil and gas. The Private Equity Stakeholder Project puts out information and data related to private equity’s impact on housing, healthcare, climate and energy, and civil rights. Americans for Financial Reform Education Fund is an activist group focusing on developing a “fair and just” financial system. It is a coalition of over 200 national organizations, including the American Sustainable Business Council, Economic Policy Institute, and the Center for Economic Progress.

Using information on the private equity firms’ energy portfolio holdings from websites and press releases, the scorecard gave Carlyle Group, which has $376 billion of assets under management, an “F” ranking, the lowest score of all eight firms.

But its peers didn’t fare much better. Warburg Pincus, KKR, Brookfield/Oaktree, Ares, Apollo, and Blackstone all received a “D” ranking on the scorecard; TPG was at the top with a “B.”

Researchers at the non-profits based the scores on information about each PE firm’s energy portfolio, including the percentage of total energy portfolio companies invested in fossil fuels, the absolute number of fossil fuel companies, and 2020 U.S. downstream carbon dioxide emissions by million metric tons. The report defines downstream emissions as the emissions of fossil fuel companies that engage in “any activity related to the post-production of the fossil fuel,” namely refineries and power plants. The scores also include a more subjective component: They reflect the private equity firms’ alignment with the PE Stakeholder Project’s demands for a what it calls a just energy transition.

To generate information about the energy holdings, researchers started with PitchBook data and relied on information on the firms’ websites about their portfolio holdings and a timeline of press releases about various new investments. They also sourced information from any public disclosures these firms made about their holdings with the Environmental Protection Agency and the Securities and Exchange Commission.


“We’re not pulling anything into our datasets that is not backed by their press releases and their own statements on their websites,” Oscar Valdés Viera, research manager at Americans for Financial Reform Education Fund, told Institutional Investor.

A number of the private equity firms said the figures used to calculate their overall scores contain multiple factual inaccuracies. (All eight firms were sent first drafts of the report and asked to review and fact-check the information.)

According to information provided by Carlyle, the first copy of the report claimed that Carlyle held 68 fossil fuel companies. The firm sent a letter to the authors of the report, pointing out that 29 of those were not owned by Carlyle and two additional companies — EnerMech and Cogentrix — were owned by the firm, but were not fossil fuel companies.

The Private Equity Stakeholder Project made some changes based on the letter. In an interview with II, Riddhi Mehta-Neugebauer, climate research director at the Private Equity Stakeholder Project, said that when Carlyle came back with these corrections, the team analyzed the new information and ultimately shaved the list down to 42 fossil fuel companies. This was the number included in the final report.

EnerMech and Cogentrix, however, didn’t fit the nonprofits’ definition of a non-fossil fuel company. Viera and Mehta-Neugebauer consider EnerMech a fossil fuel company — even though it doesn’t produce any of its own emissions — because it is a mechanical contractor, developing energy infrastructure support like pipelines and cranes. The company ultimately supports the oil and gas industry. According to its website, EnerMech’s team “includes leaders in the fields of oil and gas, petrochemicals, materials handling, power generation, heavy fabrication, road and rail infrastructure, water and mining, who understand the unique challenges and complexities of their fields.”

The same thing happened with Cogentrix, a company that owns and operates independent electric power generation facilities. While Carlyle said it does not consider it to be a fossil fuel company, it qualifies as one under the nonprofits’ definition.

“They want to say that it’s not a fossil fuel company. But for the rest of the world, it is a fossil fuel company,” Viera said.

KKR argues that while it does own these companies, it plans to be a responsible owner that engages with portfolio companies to makes changes necessary for a sustainable future. The firm also provided II with a letter its Partner and Co-head of Global Impact and Global Head of Public Affairs Ken Mehlman sent to the nonprofits’ team members after it received the first draft of the report. Mehlman highlights KKR’s commitment to net zero and its belief that “a pure divestment strategy could leave assets in less responsible hands.” Instead, the firm holds the companies under the premise of “responsible ownership and stewardship.”

The same is true for Carlyle. A spokesperson said, “Carlyle’s approach to invest in, not divest from, the energy transition is a different one, grounded in seeking real emissions reductions within portfolio companies over the long term. In order to work toward meaningful progress on climate change, we will continue to partner with companies across the energy spectrum to collect better data and strive for clear progress reducing greenhouse gas emissions.”

Viera pushed back against this strategy, saying that engagement and stewardship does not fit into the private equity business model: “Their business model is not to engage over a long period of time but to sell within five years, maybe three years. Such a short time frame is not really [conducive] to engage in a meaningful way.”

According to Viera and Mehta-Neugebauer, the chatter around the report highlights the opacity of and the need for transparency into the private equity industry. Unlike public companies and mutual funds, regulators don’t require private equity funds to disclose information, such as data on underlying companies. Without that required disclosure, fact-checking can be difficult for outside groups, journalists, and potential investors.

The SEC has long felt pressure to increase transparency into the private markets. In August, it voted to propose amendments to Form PF, a confidential reporting form for certain SEC-registered investment advisors of private funds. These amendments would provide greater regulatory oversight of private fund advisors.

The push-back against the report is an example of this lack of transparency at work, according to Mehta-Neugebauer: “Because there’s a lack of transparency within the private markets, private equity firms are able to say different things to different groups.”

As a result, the definitions of terms like “renewable technology,” “sustainability,” and even “ESG” are malleable for private equity firms, depending on their audience, Mehta-Neugebauer added.

Ares, Blackstone, Brookfield/Oaktree, and Warburg Pincus would only say the firms were committed to an energy transition. “We have invested approximately $16 billion in projects and companies that are consistent with the broader energy transition over the past three years,” said a spokesperson. Brookfield/Oaktree noted that it’s the manager of the world’s largest climate impact fund: “Our action is driven by our ambition to achieve Net Zero by 2050 or sooner and the near-term commitment we have set to reduce emissions by two-thirds by 2030 across one-third of our assets under management.”

Warburg Pincus addressed transparency directly. “Climate is an important part of our firm’s overall ESG strategy and in our ongoing effort to be transparent, we have included our estimated sector emissions profile in our publicly available ESG report. In 2020, we announced a pivot away from hydrocarbon-related investments in new funds, focusing all new energy investments in companies that will benefit from the transition to a low-carbon economy. We are dedicated to responsibly managing our legacy portfolio and we remain committed to supporting our management teams and current portfolio companies in fossil fuels.”

A spokesperson said, “Ares has made a conscientious shift to support the transition to a low carbon economy. Starting in 2019, Ares has invested more capital in renewable investments than fossil fuel investments. Importantly, Ares aims to transparently disclose the anticipated impacts of climate change on our company and portfolio and the steps we are taking to address them.”

Apollo and TPG declined to comment.