The latest report showing private equity firms emit more carbon than most of the industrialized world has the climate left in a predictable uproar. But if we are going to be serious about the global economy, we must learn to respect our new sovereign polluters.
I am, frankly, exhausted. Every time a new climate report drops, the same predictable chorus of activists seizes on a single, superficially terrifying statistic and demands we dismantle the global financial system. This week’s outrage? A new study revealing that the world’s top 20 private equity firms produce 1.5 billion tons of greenhouse gases annually.
Once again, the discourse has devolved into petty finger-pointing. Yes, 1.5 billion tons is technically more than the annual emissions of any single nation on Earth except for China, the United States, India, and Russia. Yes, it means a handful of men in midtown Manhattan are personally responsible for a larger carbon footprint than the entire continent of South America. But before we break out the pitchforks, I am begging you to look at the larger picture and ask yourself a very simple question: have you checked their assets under management?
Together, these 20 firms manage $7.3 trillion. If they were a country, they would be the third-largest economy on the planet. Why, then, are we demanding they adhere to the emissions budget of a mid-sized European municipality? It is simply bad manners to look at an entity with the GDP of Japan and expect them to power their operations with a couple of solar panels and a wind turbine. They are a great power, and great powers burn coal.
The crux of the current hysteria centers on how these firms are using their wealth. The report notes that they could easily afford to fund green energy, but are instead pouring billions into natural gas and coal-fired power plants. And why are they buying up these stranded assets? To provide reliable, base-load electricity to datacenters.
Here is where the hypocrisy of the average consumer truly rankles me. You want your streaming movies in 4K. You want your artificial intelligence to write your emails for you. You want your internet to be entirely frictionless. But the moment Apollo Global Management or The Carlyle Group fires up a 1970s-era sub-bituminous coal plant in the Ohio Valley to keep your cloud storage from buffering, suddenly they are the villains. You cannot demand a digital utopia and then complain about the smoke coming out of the engine room.
At COP last year in Dubai, I had the privilege of sharing a rather illuminating plate of lab-grown scallops with a managing director from one of the firms named in this report. He looked utterly defeated. He explained to me the sheer logistical nightmare of trying to hit internal climate targets when the public markets keep forcing their dirtiest assets into the private sector.
We are doing the public a vital service by taking these coal plants private, where retail investors don't have to look at them and feel sad.
Sterling is right, of course. When a publicly traded utility divests from a natural gas facility to make its sustainability brochure look prettier, that facility doesn't magically turn into a forest. It gets bought by private equity. They are the garbagemen of the global energy shift, quietly handling the filth so that the rest of us can pretend our index funds are clean.
And yet, the scolds demand they pivot immediately to renewables. This demonstrates a fundamental misunderstanding of fiduciary duty. A solar farm might yield a respectable 6 percent return over twenty years. Resuscitating a fully depreciated coal plant to power a cryptocurrency mining operation can yield 40 percent in eighteen months. To demand they choose the former is to demand they actively harm their limited partners. Is that the kind of world we want to live in? One where pension funds suffer just so coastal cities don't end up underwater?
The carbon intensity of these private portfolios guarantees that catastrophic warming thresholds will be breached within the decade, rendering their own financial models entirely irrelevant.
I read Mendelson’s findings, and I found them incredibly naive. He assumes that private equity firms intend to exist in the same biosphere as the rest of us by 2050. During an off-the-record panel I moderated in Aspen last month, another top executive made it quite clear that their long-term adaptation strategy involves proprietary atmospheric conditioning and elevated land acquisitions in New Zealand. They have a plan. The fact that their plan does not include you is not a moral failing on their part; it is a financial failing on yours.
This brings us to the thorny issue of scope-three emissions. The activists love to throw this term around, insisting that financial institutions should be held accountable for the end-use pollution of the companies they own. But this is a slippery slope. If a private equity firm owns a company that owns a datacenter that runs on a coal plant that they also own, who is really to blame? I would argue it is the person at home, stubbornly leaving their smart-fridge plugged in.
We have reached a critical juncture in the climate discourse. We can either continue to harass the 20 financial institutions that control the global economy, begging them to voluntarily leave trillions of dollars in the ground out of the goodness of their hearts, or we can accept reality. The reality is that $7.3 trillion buys you the right to boil the oceans, and complaining about it on a platform powered by their coal plants only makes you look like a hypocrite.
The shift away from fossil fuels will happen eventually, on Wall Street's schedule, once every last cent of profit has been wrung from the Earth's crust. Until then, I suggest you stop worrying about the 1.5 billion tons of greenhouse gases they produce and start focusing on your own household recycling bin. We are out of time, but go off.