In an era of climate crisis, investors of all stripes – including those in private markets – have been signalling their intent to transition away from oil and gas investments, reports affiliate title New Private Markets.

Last year, for example, The Carlyle Group helped to launch the One Planet Private Equity Funds initiative to “advance the understanding of climate-related risks and opportunities within our investment portfolios so that we can build better and more sustainable businesses,” according to a statement released by the group’s founders.

In July, when Brookfield Asset Management announced it had raised $7 billion for the Brookfield Global Transition Fund, Mark Carney – the firm’s vice chair and head of transition investing, and a former governor of the Bank of England – said the firm was “committed to achieving net-zero by 2050 or sooner, and to accelerating the global net-zero transition”.

What to make then of a report published in October that found private equity firms have invested around $1.1 trillion in energy assets since 2010, with that total “dominated” by fossil fuel holdings?

The report, by the non-profit Private Equity Stakeholder Project, cites data from research company PitchBook and catalogues the past decade of energy investments made by 10 of the largest private equity backers of the oil and natural gas industry. It shows the annual number of fossil fuel deals peaked at around 35 in 2018 and then began to drop amid market volatility and increasing clean energy investments.

PESP is a serial critic of private equity and not well liked by industry insiders. Executives who spoke with New Private Markets were quick to play down the credibility of the research. Several investors said it inaccurately undercounted their investments in renewable energy businesses. However, none have disputed the overall gist of the report: that large private markets firms have been substantial investors in fossil fuels over the last decade.

Of course, the PESP report is retrospective, and so raises the question: how are the same firms investing now and how will they invest in the future?

Funds still targeting oil and gas

Due to the nature of private markets fundraising, it is difficult to put an exact number on the amount of capital available to deploy into oil and gas. However, using New Private Markets‘ proprietary databases, we counted at least 15 funds – totalling more than $40 billion – that these 10 managers are either raising or deploying, with mandates allowing for oil and gas investments.

New Private Markets contacted all 10 firms to ask how they plan to invest in the energy sector from any recently raised pools of capital earmarked for the fossil fuel industry. Firms were invited to discuss the evolution of their fossil fuel investment strategies and asked to comment on the PESP report. They were given four days to comment.

The responses were mixed – one firm did not respond, three declined to comment, four supplied written statements and two put forward spokespeople for interview.

Apollo Global Management and KKR are currently managing strategies including the $4 billion Apollo Natural Resources Partners III, which targets investments in upstream oil and gas along with minerals and agriculture assets, and the $1 billion KKR Energy Income & Growth Fund II that backs energy infrastructure. They are also raising broader infrastructure funds – the $3.5 billion Apollo Infrastructure Opportunities Fund II and the $14.4 billion KKR Global Infrastructure Investors IV – which have strategies targeting assets in the midstream space, including pipelines, gathering and processing systems, and storage facilities. Both firms declined to comment on this story.

Kayne Anderson, which did not respond to a request for comment, continues to invest from a mix of strategies including closed-end vehicles like the $1.6 billion Kayne Anderson Energy Infrastructure Fund, mutual funds and commingled separate accounts.

Carlyle is currently raising the $2.5 billion Carlyle International Energy Partners II. A Carlyle spokesperson noted in a statement to New Private Markets that the firm has “committed to embedding climate change-related risks and opportunities” into its investment decisions and considers “multiple dimensions of how we can improve the climate resilience of businesses across industries”. The spokesperson declined to comment directly on the firm’s ongoing and future fossil fuel-related strategy.

The midstream space is still in play for Brookfield’s $20 billion flagship infrastructure fund, according to a spokesperson for the firm, who noted that Brookfield no longer manages any dedicated energy strategies. “Midstream is a part of our mandate and we have always been focused on acquiring businesses that have highly contracted revenues, lower terminal value risk and no direct commodity exposure,” the spokesperson said in an emailed statement.

Oaktree Capital Management, which Brookfield acquired in 2019, also declined to comment for this story. The firm manages the $1.4 billion Oaktree Power Opportunities Fund V, which has a strategy that allows for investments in fossil fuel power generation assets.

Steering towards new strategies

Other managers listed in the PESP report have announced concerted efforts to reduce their exposure to oil and gas investments.

A spokesperson for Blackstone told New Private Markets that “virtually none” of the capital the firm deployed over the last three years was invested in upstream oil and gas assets. “A lot of those activities we’ve [moved away from in] a significant way,” Blackstone president Jon Gray said during a recent earnings call. “I would expect the next vintages of our energy equity and energy debt funds will be heavily oriented towards the transition towards sustainability.”

But the Blackstone spokesperson declined to rule out future upstream investments, and the firm closed Blackstone Energy Partners III last year on $4.2 billion with a strategy targeting assets across the energy sector including upstream oil and gas, renewables and clean energy technologies. Blackstone’s open-end infrastructure vehicle, which has opened to new fundraising commitments, targets midstream assets as part of its investment strategy, reports affiliate Infrastructure Investor.

After cancelling plans to raise a new energy fund in 2019, Warburg Pincus said last year it would no longer invest in the oil and gas sector from its next flagship fund, which the firm is reportedly preparing to launch to target $16 billion. The firm declined to comment for this story.

TPG’s flagship fund series, which includes the firm’s latest vehicle, the $11.5 billion TPG Partners VIII, features a mandate allowing for oil and gas-related investments. As the firm also raises its TPG Rise Climate fund targeting $7 billion, a spokesperson told New Private Markets that TPG has shed fossil fuel assets from its $108 billion portfolio to less than one percent and is “rapidly decreasing that to zero”.

CVC Capital Partners has taken a similar approach, a spokesperson for the firm told New Private Markets. They said the firm’s €21.3 billion CVC Capital Partners VIII allows for natural gas investments, but only if those assets comply with science-based emissions targets and efficiency standards, or are in the process of transitioning to the low-carbon economy.

Following market trends related to the energy transition, Keith Derman, Ares Management’s co-head of infrastructure and power, told New Private Markets that the majority of the capital deployed from the firm’s $800 million Ares Energy Investors Fund V has gone to the clean energy sector and that the strategy has not committed to new fossil fuel investments since 2018.

Derman declined to fully rule out new oil and gas investments in the future but said the evolution in the infrastructure and power group’s strategy is “evidenced by our shift over the last few years to invest more capital in renewable investments than fossil fuels”.

Ares also continues to provide financing to oil and gas assets through bond investments from the firm’s liquid credit strategy. It has around $30 million left to deploy from the $1.1 billion Ares Energy Opportunities Fund, which is being used to support existing investments in the energy infrastructure space.

Can’t just flip a switch

“The challenge put forward with the PESP report is that some people want to flip a switch and immediately be in a renewable energy environment, and that’s just unrealistic,” Drew Maloney, chief executive of trade association the American Investment Council, told New Private Markets. “In recent years, there has been more money invested in the energy transition, and more funds will be raised moving forward.”

Firms that continue to invest in the fossil fuel industry are separating into two camps, according to John Hodges, head of infrastructure and financial services at ESG consultancy BSR. He says some firms are “honest about being opportunistic”, whereas some “invest one way with one hand, while doing something else with the other”.

“Some of the larger firms are still guilty of investing two funds simultaneously, with one having a fossil fuel component and the other not,” he told New Private Markets. “Companies that made emissions reductions commitments may have a rude awakening in five or 10 years when their data does not match up with that commitment.”