{"id":31329,"date":"2024-01-15T16:28:17","date_gmt":"2024-01-15T15:28:17","guid":{"rendered":"https:\/\/reclaimfinance.org\/site\/?p=31329"},"modified":"2024-01-16T08:27:39","modified_gmt":"2024-01-16T07:27:39","slug":"shareholders-turn-a-blind-eye-to-carlyles-fossil-fuel-investments","status":"publish","type":"post","link":"https:\/\/reclaimfinance.org\/site\/en\/2024\/01\/15\/shareholders-turn-a-blind-eye-to-carlyles-fossil-fuel-investments\/","title":{"rendered":"Shareholders turn a blind eye to Carlyle’s fossil fuel investments"},"content":{"rendered":"

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 (Cr\u00e9dit Agricole), Legal & General Investment Management, and Allianz Global Investors. By their inaction, Carlyle shareholders are endorsing the firm\u2019s 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, <\/span><\/b>the firm has no public fossil fuel policy<\/b><\/a><\/span> to make this commitment credible. Moreover, when analyzing its investments in practice, Carlyle is far from aligning its energy activities with a 1.5\u00b0C trajectory.<\/span><\/b>\u00a0<\/span><\/p>\n<\/div>

Massive investments in fossil fuels<\/h2><\/span>
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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\u00b0C 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).<\/p>\n

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).<\/p>\n

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\u00b0C 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).<\/p>\n<\/div>

Keeping fossil fuels on the map<\/h2><\/span>
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Carlyle and its partners (5) do not intend to keep Neptune Energy in their portfolio for long:\u00a0 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. <\/span>One of the main business models of private equity firms<\/a><\/span> is to buy companies, restructure them to make them financially efficient \u2013 private equity firms usually have a direct influence on the companies\u2019 strategies (9)-, and then sell them a few years later at a profit.<\/span>\u00a0<\/span><\/p>\n

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.<\/span>\u00a0<\/span><\/p>\n<\/div>

Figure 1. Simplified illustration of how private equity works, using the fossil fuel sector as an example<\/em><\/p>\n<\/div>

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Shareholder complicity in inaction<\/h2><\/span>
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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.\u00a0 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 (Cr\u00e9dit Agricole), and Allianz Global Investors (11). The latter three, for example, have <\/span>some restrictions on new upstream oil projects<\/a><\/span> at the parent (group) level, which contrasts with Neptune Energy\u2019s upstream expansion plans.<\/span>\u00a0<\/span><\/p>\n

Carlyle shareholders have the opportunity to express their disapproval of the firm\u2019s support for fossil fuels by voting against the renewal of the board members during <\/span>its Annual General Meeting (AGM)<\/span>. <\/span>However, at Carlyle\u2019s most recent AGM, Carlyle\u2019s 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.<\/span>\u00a0<\/span><\/p>\n

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\u00b0C pathway. To align with a 1.5\u00b0C 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.\u00a0<\/span><\/b>\u00a0<\/span><\/p>\n<\/div>

Table 1. Shareholder votes for the election of directors at Carlyle’s 2023 AGM \u2013 sample for illustrative purposes (13).<\/em><\/p>\n<\/div>\n

\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
Group\/Asset manager<\/span><\/b><\/th>\nNZAMI <\/span><\/b><\/th>\nCoal Policy
\n<\/span><\/b><\/th>\n		Oil and Gas Policy
\n<\/span><\/b><\/th>\n		Reelection of director William E. Conway, Jr.<\/span><\/b><\/th>\nReelection\u202f<\/span><\/b>\u202f<\/span>of director Lawton W. Fitt<\/span><\/b><\/th>\nReelection of director Mark S. Ordan<\/span><\/b><\/th>\nReelection of director Anthony Welters<\/span><\/b><\/th>\n<\/tr>\n<\/thead>\n
Vanguard\u00a0<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
BlackRock<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
State Street\/State Street Global Advisors<\/span>\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nWithhold<\/td>\nWithhold<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
Legal & General\/ Legal & General Investment Management<\/span>\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nWithhold<\/td>\nFor<\/td>\nWithhold<\/td>\n<\/tr>\n
UBS\/UBS Asset Management<\/span>\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nWithhold<\/td>\nFor<\/td>\nWithhold<\/td>\n<\/tr>\n
JPMorgan Chase\/ JPMorgan Asset Management<\/span>\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
Invesco<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
HSBC\/HSBC Asset Management<\/span>\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nWithhold<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
Deutsche Bank\/DWS<\/span>*<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\nFor<\/td>\n<\/tr>\n
Cr\u00e9dit Agricole\/Amundi\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nWithhold<\/td>\nWithhold<\/td>\nWithhold<\/td>\n<\/tr>\n
Allianz\/Allianz Global Investors\u202f<\/span>\u00a0<\/span><\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nFor<\/td>\nWithhold<\/td>\nFor<\/td>\nWithhold<\/td>\n<\/tr>\n
Natixis\/Natixis Investment Managers<\/span>**<\/td>\n\"\"<\/td>\n\"\"<\/td>\n\"\"<\/td>\nN\/A<\/td>\nN\/A<\/td>\nN\/A<\/td>\nN\/A<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

* DWS <\/span>voted<\/a><\/span> on holdings held by the US legal entity DBX ETF Trust. Holdings of EMEA legal entities were not part of <\/span>DWS proxy voting core list<\/a><\/span> and were hence not exercised.<\/span>
\n** <\/span>Natixis\u202fInvestment Managers\u202fhas\u202fseveral affiliates that all exercise their own voting rights and disclose their votes separately.<\/span>\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n<\/div>\n

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Notes:<\/h3><\/span>
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  1. The Private Equity Climate Risks project, <\/span>The Carlyle Group\u2019s Hidden Climate Impact<\/a><\/span>, April 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  2. International Energy Agency, <\/span>World Energy Outlook 2023<\/a><\/span>, October 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  3. The Private Equity Climate Risks project, <\/span>The Carlyle Group\u2019s Hidden Climate Impact<\/a><\/span>, April 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  4. Reclaim Finance estimates using data from the Private Equity Climate Risks project, <\/span>The Carlyle Group\u2019s Hidden Climate Impact<\/a><\/span>, April 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  5. Currently, 49% of Neptune Energy is owned by China Investment Corporation, 30.6% by The Carlyle Group and 20.4% by CVC Capital Partners. Neptune Energy, <\/span>About us<\/a><\/span>, accessed in November 2023.\u00a0\u00a0<\/span>\u00a0<\/span><\/li>\n
  6. Neptune Energy, <\/span>Neptune Energy completes the acquisition of ENGIE E&P International SA<\/a><\/span>, February, 2018, accessed in November 2023 and ENGIE, <\/span>ENGIE enters into exclusive negotiations for the sale of its 70% interest in Exploration & Production International<\/a><\/span>, May 2017, accessed in November 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  7. Urgewald, <\/span>Global Oil and Gas Exit List 2023<\/span><\/a>, Neptune Energy, <\/span>Operations<\/a><\/span> and Urgewald, <\/span>Reputational risk projects: Wisting Oil Field and Barents Sea<\/a><\/span>.\u00a0<\/span>\u00a0<\/span><\/li>\n
  8. Eni, <\/span>Eni and V\u00e5r Energi to acquire Neptune, a leading independent exploration and production company with low emission, gas-oriented operations in Western Europe, North Africa, Indonesia and Australia<\/a><\/span>, June 2023, accessed in November 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  9. Appelbaum E., Batt R., <\/span>Private Equity at Work: When Wall Street Manages Main Street<\/a><\/span>, 2014.<\/span>\u00a0<\/span><\/li>\n
  10. Financial Times, <\/span>Inside private equity\u2019s race to go public<\/a><\/span>, January 2022.\u00a0<\/span>\u00a0<\/span><\/li>\n
  11. List of Carlyle shareholders obtained by Reclaim Finance from the Bloomberg Terminal in October 2023. The list is available upon request at research@reclaimfinance.org. Sectoral policies vary widely in quality and ambition. For more information on the fossil fuel policies of these investors, see the <\/span>Coal Policy Tracker<\/a><\/span> and the <\/span>Oil and Gas Policy Tracker<\/a><\/span>.\u00a0<\/span>\u00a0<\/span><\/li>\n
  12. William E. Conway, Jr. was reelected with 96.8% of the votes FOR, Lawton W. Fitt with 93.7%, Mark S. Ordan with 98.1% and Anthony Welters with 95.3%. US Securities and Exchange Commission, <\/span>Form 8-K The Carlyle Group<\/a><\/span>, May 2023, accessed in November 2023.\u00a0<\/span>\u00a0<\/span><\/li>\n
  13. This sample list was selected for illustrative purposes based on 30 of the largest asset managers headquartered in Europe and the United States analyzed in Reclaim Finance’s \u00ab\u00a0<\/span>Who’s managing your future?<\/a><\/span>\u00a0\u00bb report who were among Carlyle’s top 150 shareholders. Votes were identified in November 2023 using each shareholder’s proxy voting disclosure and cross-referenced with information from the Diligent Market Intelligence database.<\/span>\u00a0<\/span><\/li>\n<\/ol>\n<\/div>
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