Shareholders turn a blind eye to Carlyle’s fossil fuel investments

The Carlyle Group (Carlyle) may fly under the radar, but with US$382 billion in assets under management, it is one of the largest private equity firms in the world. Its shareholders include big names like BlackRock, Amundi (Crédit Agricole), Legal & General Investment Management, and Allianz Global Investors. By their inaction, Carlyle shareholders are endorsing the firm’s strategy, including its investments that exacerbate climate change. Indeed, while Carlyle portrays itself as a leader among private equity firms in its commitment to achieve net-zero greenhouse gas emissions across its investments by 2050, the firm has no public fossil fuel policy to make this commitment credible. Moreover, when analyzing its investments in practice, Carlyle is far from aligning its energy activities with a 1.5°C trajectory. 

Carlyle has one of the largest energy portfolios among private equity firms, most of which is dedicated to fossil fuels. In fact, its energy portfolio is completely inverted compared to what is needed if we are to stay on a 1.5°C trajectory: for every dollar Carlyle invests in renewable energy, it invests sixteen in fossil fuels, according to research by the Private Equity Climate Risks project (1). By comparison, the International Energy Agency’s Net Zero Emissions scenario estimates that by 2030, for every dollar invested in fossil fuels, ten will need to be invested in the energy transition (2).

Carlyle invests in controversial upstream, midstream and downstream fossil fuel assets around the world through companies in which it is often the sole or majority owner or has a significant ownership stake (see Figure 1) (3). In Europe, for example, Carlyle holds five oil and gas companies that operate 25 upstream assets -many in exploration- and 88 midstream assets -mainly storage terminals with high methane leakage risks (4).

One such company is Neptune Energy, based in the United Kingdom. The exploration and production company that was co-founded by Carlyle in 2015 and its management team consists of former employees of fossil fuel companies such as Shell, Chevron, and BP (5). Neptune Energy has grown in part by buying fossil assets from companies that are decarbonizing their portfolios, such as ENGIE, and continuing to operate them (6). Currently, Neptune Energy plans to continue expanding its upstream oil and gas assets, although halting investment in new oil and gas production projects is a critical first step to meeting the 1.5°C imperatives. Indeed, it has 114,1 millions of barrels of oil equivalent (mmboe) of short-term expansion plans and significant operations in the Arctic, including licenses in the Barents Sea, an endangered region with abundant Arctic wildlife (7).

Carlyle and its partners (5) do not intend to keep Neptune Energy in their portfolio for long:  Italian major Eni is buying Neptune Energy, and the transaction is expected to close in the first quarter of 2024 (8). This is not surprising. One of the main business models of private equity firms is to buy companies, restructure them to make them financially efficient – private equity firms usually have a direct influence on the companies’ strategies (9)-, and then sell them a few years later at a profit. 

However, this type of business model threatens to slow fossil fuel phase-out for several reasons. When private equity firms buy fossil fuel companies, they typically do so with the perspective of continuing to operate their fossil fuel assets. Similarly, to date, private equity firms have normally had little incentive to care about accompanying and encouraging the company in a managed phase-out of fossil fuels. This is because they know that they will end up selling the fossil fuel company while escaping accountability for the negative impacts caused and reaping the financial benefits. 

Figure 1. Simplified illustration of how private equity works, using the fossil fuel sector as an example

While the focus is often on private equity fund investors (limited partners), a growing number of private equity firms are publicly traded, which means they are responsive to shareholders in addition to fund investors (see Figure 1) (10). Carlyle is one such listed private equity firm.  Its shareholders include members of the Net Zero Asset Managers initiative (NZAMI) such as State Street Global Advisors, BlackRock, and JPMorgan Asset Management; and even some with some fossil fuel restrictions such as, UBS Asset Management, Amundi (Crédit Agricole), and Allianz Global Investors (11). The latter three, for example, have some restrictions on new upstream oil projects at the parent (group) level, which contrasts with Neptune Energy’s upstream expansion plans. 

Carlyle shareholders have the opportunity to express their disapproval of the firm’s support for fossil fuels by voting against the renewal of the board members during its Annual General Meeting (AGM). However, at Carlyle’s most recent AGM, Carlyle’s shareholders overwhelmingly supported the re-election of the members of the board of directors, with each of the four director nominees receiving more than 94% of the votes cast (see Table 1) (12). The few votes cast against these directors were mostly justified by concerns over gender diversity, and not by concerns over climate inaction. Through their votes, investors approved the strategy implemented by the firm, despite the lack of serious consideration given to climate issues. These shareholders are therefore complicit in Carlyle’s support for fossil fuels, even if some of them have sectoral policies aimed at reducing their exposure to fossil fuels in other types of investments. 

Carlyle shareholders must change their approach before the next annual meeting in 2024 to hold directors accountable for the firm’s failure to disclose all portfolio emissions (scope 1, 2, and 3) and fossil fuel companies; and most important, for its failure to develop a climate strategy consistent with a 1.5°C pathway. To align with a 1.5°C pathway, Carlyle must urgently adopt public sectoral policies that include, at a minimum, the restriction of all fossil fuels assets in all new funds and an end to fossil fuel expansion in companies already in the portfolio.  

Table 1. Shareholder votes for the election of directors at Carlyle’s 2023 AGM – sample for illustrative purposes (13).