A report by the Private Equity Stakeholder Project was recently featured in a piece by Investment Week on the impact of environmental, social, and corporate governance (ESG) in private equity investments.
Investment Week July 29, 2022: Deep Dive: Private markets take steps towards the ‘mainstreaming’ of ESG
Investment Week reported the increasing demand for sustainable investment options is complicated by the lack of clear definitions, leading to greenwashing. “The crackdown against greenwashing by US and European regulators in the past year has mostly focused on public investments,” Investment Week said, but for private markets there continues to be a lack of disclosure and regulations. “This lack of transparency makes it challenging for investors to determine who is truly integrating ESG principles.”
Aliénor Legendre, ESG research analyst at MainStreet Partners, notes this very trend by saying, “Promises made by private equity funds are not always synonymous with strong impact.”
One example of the distance between words and actions is with The Carlyle Group, which recently pledged to be net zero by 2050. However, Carlyle intends to continue investing in fossil fuel companies. Carlyle’s TCFD climate disclosure also excludes its majority stake in NGP energy, a major investor in fossil fuel drilling.
The Carlyle Group’s exposure to fossil fuels was profiled in the “PE Propels the Climate Crisis” report.
Aliénor Legendre referenced this “PE Propels the Climate Crisis” report in the Investment Week article.
“A report by the NGO The Private Equity Stakeholder Project, analysed the portfolios of ten US private equity firms over the past decade and discovered that they hold a total of 300 portfolio companies but only 20% of that total were in renewables,” she said.
With engagement from institutional investors, as well as what Legendre calls “government incentives to mitigate the risks associated with these investments and demand more transparency from the sector,” private equity firms’ fueling of the climate crisis and environmental injustice can be mitigated.