Private equity’s ESG record reveals troubling trend

Some 80% of energy assets in top PE firms are fossil fuels.

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Toro bravo!: Engagement is better than avoidance. The charging bull of Wall Street. Photo: Sam valadi/flickr

(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)

CHAPEL HILL, N.C. (Callaway Climate Insights) — When it comes to persuading companies to become more climate friendly, engagement is a more effective long-term strategy than avoidance.

This has been a persistent theme of mine, and a new study provides yet more support for it. If investors make life too intolerable for a polluting publicly-traded company, either by refusing to invest in its shares or by outright selling it short, the company can respond by going private. At that point, of course, investors have even less ability to even get management’s attention.

In other words, if we keep polluting companies from playing on our playground, they may simply go play somewhere else that is off limits to us.

This isn’t a new worry. But what this new study documents is just how poor private equity (PE) firms’ ESG performance really is. If you thought publicly-traded firms come up woefully short in being climate friendly — and many do — then brace yourself for the even-worse performance of PE firms.