Financial Times : Can private equity meet public responsibilities?

The private equity industry faces reputational challenges due to its high management fees and accusations of negative practices, such as neglecting nursing homes and acquiring fossil fuel assets. Critics argue that the industry’s extensive holdings give it too much influence over the economy. The opaque nature of private equity raises concerns about its commitment to sustainable business practices. Watchdogs are scrutinizing the industry’s climate credentials, but its private nature makes it difficult to assess its actions.

Financial Times October 11, 2023: Can private equity meet public responsibilities?

The private equity industry’s lack of transparency raises doubts about the sincerity of its commitments to sustainable business practices. Because private equity firms operate in relative secrecy, it is challenging to assess their actual efforts in this regard. This opacity makes it difficult for outsiders to verify whether the industry is truly adhering to its pledges on sustainability, environmental responsibility, and ethical governance.

While some private equity firms may claim to prioritize ESG (Environmental, Social, and Governance) considerations, the lack of public disclosure and oversight means that their actual actions and impact on sustainability often remain hidden from scrutiny. This opacity has led to concerns that these firms may not be as committed to responsible business practices as they profess, raising questions about the authenticity of their efforts in an era where sustainable investing is gaining prominence.

Another issue of concern is that as major energy corporations strive to reduce their carbon footprint by divesting their most polluting assets, these assets often end up in the possession of private equity-backed owners, who may face less rigorous scrutiny regarding their environmental obligations. PESP recently partnered with Public Citizen to follow private equity-backed oil and gas wells on federally-owned lands. The investigation found that the private equity industry has a long history of investing in declining industries, extracting profit and then, in many cases, filing for bankruptcy after a company has been rendered worthless, avoiding financial responsibility for liabilities. Investments by private equity firms in nearly 2,700 oil and gas wells on federal and tribal lands across the western United States could leave taxpayers with a cleanup bill of up to $380 million. Given this pattern, the report authors urged federal and state officials to ensure that the oil and gas industry bears the financial burden of plugging and cleaning up aging oil and gas wells around the country.

Financial Times came to PESP to learn about how its researchers assess the social and environmental consequences of private equity firms’ actions.

“The Private Equity Stakeholder Project, an advocacy group, produces regular reports on the social and environmental impact of private equity firms. In September, for example, it highlighted the expansion of investments into fossil fuels by KKR, including three liquefied natural gas projects, two of which it says have been cited for environmental violations.” 

“Private equity is quietly buying up pretty extensive conventional energy assets, as well as expanding them,” PESP climate director Alyssa Giachino told FT. “and there’s no accounting for it.”

The report on KKR’s LNG projects that FT mentioned in the story can be found HERE.