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December 8, 2021

Private equity escapes climate scrutiny

Private equity houses continue to resist calls for greater disclosure of the emissions they fund, raising concerns that privately held companies are becoming a haven for fossil fuel assets.

A report by index provider MSCI finds that there is not enough evidence yet to conclusively back recent claims that buyout firms are contributing to the longevity of non-renewable energy sources, but it did conclude that regulators are unlikely to tolerate the lack of disclosure for long.

While most of the largest private equity companies do make an effort to disclose emissions for their day-to-day operations and the energy required to power them, only one, EQT Partners, has disclosed the emissions of its portfolio.

Some managers have made partial disclosures of scope 3 emissions, which cover indirect emissions in the value chain, but most omitted any mention of their investments.

Amid the opacity, claims are swirling about the carbon intensity of private equity holdings. The Private Equity Stakeholder Project has recently reported that almost 80 per cent of private equity capital flows into non-renewables. But MSCI questioned this, finding that in a sample of transactions over the last decade, only 12.1 per cent related to energy-related assets, including renewables.

Despite this, the report’s authors warn that current practices may not be able to endure, pointing to the way asset managers have had to swap anecdotal evidence of their sustainability for hard data.

“Managers of private-equity funds, too, may soon face similar requirements. More transparency and less conjecture are what investors, and the world, will need to complete the puzzle on where emissions come from and how to bring them down,” the report concludes.

A service from the Financial Times