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As the oil and gas industry faces turmoil amid global price fluctuations and catastrophic climate change, private equity firms, a class of investors overly focused on maximizing profits, have entered the fray.

The private equity sector has invested at least $1.1 trillion in the energy sector since 2010 – twice the combined market value of three of the world’s largest energy companies, Exxon, Chevron and Royal Dutch Shell, according to new research. The overwhelming majority of these investments have been in fossil fuels, according to data from Pitchbook, a company that tracks investments. A new analysis from the Private Equity Stakeholder Project, a nonprofit seeking further clarification on private equity deals.

According to Pitchbook data, only 12 percent of private equity firms’ investments in the energy sector since 2010 have gone to renewable energy such as solar or wind, but these investments have grown faster.

Private equity investors are taking advantage of an oil industry that is facing heat from environmental groups, the courts and even its own shareholders to start shifting away from fossil fuels, the main force behind climate change. As a result, many oil companies began to divest some of their dirtiest assets. often it ended in their hands privately funded companies.

Buyers who want to buy riskier, less desirable assets for cheap keep some of the most polluting wells, coal-fired power plants and other inefficient properties in operation by hunting the bottom for bargain prices. This allows greenhouse gases to be pumped into the atmosphere.

At the same time, faced with their own pressure to cut fossil fuel investments, banks began to withdraw from financing the industry, raising the role of private equity.

The fossil fuel investments come at a time when climate experts as well as the International Energy Agency, the world’s most influential energy agency, say nations should do. move away more aggressively from burning fossil fuelssaid Alyssa Giachino of the Private Equity Stakeholder Project.

“You see oil majors feeling the heat,” he said. “But private equity is quietly picking up the residue by operating the least desirable assets.”

In the Private Equity Stakeholder Project report, he examined the energy investments made since 2010 by 10 of the largest private equity companies, including Blackstone, KKR and Carlyle. The report found that about 80 percent of current holdings are in oil, gas and coal. This happened despite many of the companies announcing their sustainable investments.

Private equity firms have emerged as an increasingly powerful but hidden investment force in recent years. They often raise large pools of money from wealthy or institutional investors to invest directly in companies that are often in distress and are unable to raise capital in more traditional ways. Because firms have to disclose relatively limited information, it can be difficult to get a full view of their holdings or their climate or environmental practices.

Drew Maloney, president and CEO of the American Investment Council, a trade group that represents private equity, said the industry is “playing an important role in the energy transition and investing more and more in renewable energy projects every year.” In 2020, private equity said it financed more than half of all private renewable energy projects in America.

“This significant investment provides more jobs and cleaner energy for the future,” said Mr. Maloney.

The private equity sector now plays an important role, managing $7.4 trillion in global assets. the broad field of American lifeFrom firefighting services to nursing homes, it often finances deals with debt while generating profits for its clients and wages for its managers. Among the clients are public pension funds, which are currently allocated on average. approximately 20% of their investment. in private equity.

In the fossil fuel industry, one effect of sales to private equity investors is to divert these assets and their emissions and other environmental hazards away from the public eye. While all companies, public or private, must comply with environmental regulations, private companies are exempt from many public financial disclosure rules. As a result, some of the country’s largest emitters of methane, gas that warms a particularly strong planetare oil and gas producers backed by relatively little-known investment firms.

Hilcorp, a privately held company backed by private equity giant Carlyle, purchased oil giant ConocoPhillips’ San Juan Basin assets in Colorado and New Mexico for $3 billion in 2017, and last year owned all of BP’s Alaska operations and interest for $5.6 billion. Bought for dollars. Hilcorp is now the nation’s largest known emitter of methaneDespite producing only a third of Exxon’s oil and gas volume, it reports almost 50 percent more emissions from its operations than Exxon Mobil, the nation’s largest fossil fuel producer.

Hilcorp, Carlyle and ConocoPhillips did not comment.

David McNeil, head of climate risk at Fitch Ratings, wrote in a note earlier this year that there is a growing trend among public companies and investors to divest from fossil fuels or other holdings that contribute to climate change, but with “relatively little focus.” it depends on who buys these assets” and private equity firms, in particular, “will generally have less incentive to reduce emissions than their public counterparts.”

At the height of the epidemic, dozens of privately funded oil and gas producers Files for bankruptcy, raising concerns that they will use the restructuring process to evade cleanup rules. Now, with oil and gas prices rising again, specialty rock drilling and fracking is leading a recovery in oil and gas drilling.

“Any private equity fund is obsessed with one thing, and there is only one thing: How much money can we make on any investment?” said Ludovic Phalippou, a professor of financial economics at Oxford University’s Saïd Business School. “And when these largely stock companies collapse, you don’t even know who to get mad at because you don’t even know who they are.”

There are some signs of change.

Pitchbook data shows that since 2010, private equity investment in renewables has grown by nearly three times that of investment in fossil fuels, albeit from a much lower base. Last year, the decline in oil demand triggered by the Covid-19 pandemic resulted in the fewest fossil fuel deals among the top 10 private equity firms since 2011, while the number of investments in renewable firms increased.

And paradoxically, rising oil and gas prices could help make renewable energy even more competitive with fossil fuel projects, as a rise in electricity prices could help boost demand for new wind or solar projects among utilities and those looking to protect themselves from the wild fluctuations around the world. Market.

Ayako Yasuda, a professor of finance at the University of California, Davis Institute of Business, said that private equity is “very encouraged to maximize what its clients want.” “I don’t think they’ll have a problem doing that,” if customers spend money to find profits in environmentally sound investments.

Blackstone spokeswoman Kate Holderness said almost none of the company’s capital has been in oil exploration or production in the past three years. about 11 billion dollars was allocated to clean energy projects. The company said it aims to reduce its emissions by 15 percent in all new investments where it controls energy use.

Weak disclosure rules mean it is difficult to verify environmental claims in the private equity sector. Blackstone has come under criticism for deals such as purchasing a project to build a new oil pipeline and export terminal in Louisiana. emits more than 500,000 tons of greenhouse gases per year. Ms Holderness said the pipeline will be equipped with real-time emissions detection and monitoring technology.

Groups like the Private Equity Stakeholder Project have urged the Securities and Exchange Commission to force private equity firms to fully disclose the details of their fossil fuel holdings. American Investment Council, trade group, opposed such a move., saying that the current requirements are sufficient, especially since the private equity industry serves relatively sophisticated investors – pension funds or others who have enormous amounts of money to invest and are required to do their own research.

Sophie Shive, associate professor of finance at the University of Notre Dame, said stricter transparency rules will help good private equity firms differentiate themselves in a dark industry and attract new investors. Right now, “bad actors are easier to hide,” he said.