In the years following the approval of a citywide Green New Deal in Ithaca, New York, the idyllic college town garnered headlines for its ambitious plan to become carbon-neutral by 2030. The city had secured roughly $100 million in private funding to decarbonize the entirety of its building stock. And the list of financiers—including Goldman Sachs and Microsoft—was bound to raise some eyebrows.
Anna Sorokina
The story made national news as Ithaca became the poster child of municipal electrification, but at the local level, some residents had concerns.
“I was one of many people in the community that wanted transparency, like ‘show us the goods,’ ” says Dan Antonioli, a local contractor and resident of the neighboring town of Dryden.
As cities turn to the private sector to finance their carbon neutrality commitments, the same structures that allow investment firms to bypass bureaucratic red tape with startling speed also let them keep communities in the dark. This lack of transparency is at the crux of the public-private partnership debate.
Nationwide, municipalities like Ithaca are wielding a double-edged sword over which they may not have full control. Private equity firms have been eager to capitalize on the growth potential of decarbonization. They manage trillions in assets and target short-term investments, often at the expense of the companies they buy. The business model of private equity stands in stark contrast to the long-term investment needed to fulfill community climate goals.
“Their business model requires them to increase cash flows, to extract capital out of assets, or raise the value substantially of that investment over a relatively short time period in order to deliver returns back to their investors,” says Alyssa Giachino, director of climate campaigns at the Private Equity Stakeholder Project, a nonprofit financial watchdog.
In recent years, pension funds have been allocating billions of dollars to private equity in a bid to diversify their portfolios and reap attractive investment returns. This includes investing with venture capital firms, a subset of private equity, that fund early-stage companies in the hopes that long-term growth will follow.
As investor demand for environmental, social, and governance (ESG) investments grows, venture capitalists have been investing in climate start-ups and similar initiatives at a staggering pace.
In recent years, pension funds have been allocating billions of dollars to private equity in a bid to diversify their portfolios.
The veneer of ESG has enabled asset managers and their investors to tailor action on climate and the environment to their own interests. Consider the Goldman Sachs Clean Energy Income Fund, which, according to Energy Monitor, is among the many American ESG funds with substantial exposure to fossil fuels. In November 2022, Goldman Sachs also came under fire from the Securities and Exchange Commission after failing to follow proper ESG investment policies and procedures.
BlackRock, which has $9.4 trillion in assets under management, has also espoused ESG, despite pushing hundreds of billions of dollars into new fossil fuel investments. The financial titan’s chief executive officer, Larry Fink, has scaled back his ESG rhetoric since facing conservative backlash, with some states blacklisting BlackRock from doing business with government entities (including public pension funds).
“I don’t know how a person like Larry Fink sleeps at night, knowing what he knows about the impact of climate change, and the fact that he has created a . . . robotic mechanism to destroy the planet,” says Pete Sikora, climate and inequality campaigns director at New York Communities for Change.
Although the ESG funds of asset managers like Goldman Sachs and BlackRock are considered public equity, their private equity portfolios are shrouded in secrecy. Neither firm fulfilled a request by The Progressive to disclose their private equity-related fossil fuel holdings.
Pension funds like the California Public Employees’ Retirement System and the California State Teachers’ Retirement System—widely known as CalPERS and CalSTRS, respectively—continue to prop up the fossil fuel industry with public dollars.
Associated Press
A 2022 report noted that pension funds like the California Public Employees’ Retirement System and the California State Teachers’ Retirement System have exaggerated the costs associated with divesting from fossil fuels.
For years, these pension giants have vehemently fought legislation that would require them to divest from fossil fuels, arguing that divestment would violate their fiscal responsibility. Instead, most pension funds believe they can convince high-emitting portfolio companies to decarbonize.
“It’s the power of the purse,” says Amanda Mendoza, senior climate research and campaign coordinator at the Private Equity Stakeholder Project. “And in this situation, it’s public pension funds.”
CalPERS and CalSTRS are among the few public pension funds in the United States that have actively considered their exposure to climate-related financial risk. Nevertheless, both funds have exaggerated the costs of divesting from fossil fuels, according to a May 2022 report from the climate justice coalition Fossil Free California.
Pulling out of coal, oil, and gas would cost CalPERS and CalSTRS at least $115 million. If the two pension funds had divested ten years ago, they would have saved nearly $9.6 billion. Those were the findings of a report last June co-published by the University of Waterloo (a Canadian public university in Ontario) and the grassroots environmental group Stand.earth, which revealed that six prominent U.S. public pension funds—including CalPERS and CalSTRS—could be $21 billion richer today if they had exited fossil fuels in 2013.
Amy Gray, senior climate finance strategist at Stand.earth and commissioner of the study, admits the sample size was small but maintains that the findings translate to other public pension funds as well.
“We can safely say all pension funds are losing money by staying invested in fossil fuels,” she tells The Progressive.
“As long as there’s a market for oil and gas, they’re not going to run from it.”—Amanda Mendoza
While the report focused only on Scope 1 and 2 emissions, which are attributable to publicly traded companies, this decision was intentional. Conversely, Scope 3 emissions are harder to quantify because private investment firms can only encourage portfolio companies to disclose their emissions because they do not own the assets themselves.
In the absence of regulation, private equity has been free to pour billions of dollars into fossil fuels without divulging climate risk.
“As long as there’s a market for oil and gas, they’re not going to run from it,” Mendoza says.
In August, the Private Equity Stakeholder Project released a report identifying nineteen firms with investments in thirty-five oil and gas companies that, since 2017, have received permits to drill on federal lands.
“If adequate protections are not put in place, U.S. taxpayers could be stuck with a bill of nearly $384 million in just eight states for decommissioning and cleaning up nearly 2,700 oil and gas wells on federal and tribal lands operated by private-equity-backed companies,” the report warns.
A separate report by the organization in October 2021 found 80 percent of all energy assets managed by the ten largest private equity firms were exposed to fossil fuels, while 20 percent consisted of renewables.
Among these firms was the Carlyle Group, one of the largest owners of gas-fired power plants in the United States.
Since 2012, Carlyle has held a majority stake in NGP Energy Capital, a private equity firm primarily investing in oil and gas. The two firms have approximately $20.8 billion in fossil fuel holdings companies, according to a review by The Progressive of recent filings with the SEC.
Private equity firms wrongly believe that the low-carbon future envisioned in the market-centric approach to the climate crisis can be achieved without fundamentally changing humanity’s relationship with the planet.
Carlyle has defended its fossil fuel investments by claiming to be working with high-emitting portfolio companies to help them develop decarbonization goals in line with the Paris climate accord, as has another firm, Brookfield Asset Management. This argument suggests that reducing carbon intensity is a matter of going where the emissions are.
In their eyes, the low-carbon future envisioned in the market-centric approach to the climate crisis can be achieved without fundamentally changing humanity’s relationship with the planet.
At this juncture, instances of transparency around emissions are few and far between. Relying on industry initiatives has failed to solve this pervasive problem.
“The fox can’t watch the henhouse,” Giachino tells The Progressive, adding that private investment firms “have far too many counter-incentives to continue making as much money as possible off the status quo.”
The legal framework to which these firms are bound requires them to generate the highest possible return for their investors. Private investment firms may consider factors related to climate and the environment, but they are not legally obligated to abide by these considerations.
A prime example of the market trying to fill this gap is the ESG Data Convergence Initiative. Led by Carlyle and CalPERS, it has sought to equip firms and funds alike with the tools to compile and disclose ESG-related data.
Self-reporting climate-related financial risk is entirely voluntary, meaning these firms may disclose as much or as little as they desire. Since the data is anonymized, calling out those contributing to the worst of climate change quickly proves to be an exercise in patience (reminiscent of the board game Guess Who?).
“All the financial actors are doing some amount of greenwashing about how committed they are to the energy transition and how they’re decarbonizing,” Giachino says.
At the federal level, progress toward establishing regulations to usher in greater transparency has been glacial.
In March 2022, the SEC formally proposed requiring mandatory climate risk disclosures within the financial reports of publicly traded businesses. Key words: publicly traded. This means private investment firms would be let off the hook. And the final ruling, which has been delayed, may also end up as a watered-down version of the original proposal because the SEC could scrap requiring Scope 3 emissions disclosures.
But as cities around the country unveil their decarbonization plans, the time to regulate industry practices is running out.
As part of the industry’s growing efforts to embrace ESG, firms like Brookfield, TPG Capital, Apollo Global Management, Blackstone, and Ares Management have raised tens of billions for decarbonization—the scope of which extends beyond renewable energy to alternative fuels and carbon capture.
Brookfield recently closed its $15 billion Global Transition Fund. The manager intends to raise an additional $20 billion for a successor fund and, in the next ten years, grow its energy transition business to more than $200 billion.
Similarly, the Blackstone Green Private Credit Fund III closed at just north of $7.1 billion. Blackstone has also raised $3.3 billion for Blackstone Energy Transition Partners IV, which is targeting $6 billion. The manager plans to invest up to $100 billion in the energy transition over the next decade.
All of these factors converge in Ithaca with BlocPower, which is leading the charge to decarbonize all the city’s 6,000 buildings. The startup has also been tapped to lead similar projects in cities like San Jose, California, and New York, New York.
BlocPower’s mission, emphasizing the need to support low-income, marginalized communities, also pairs well with Ithaca’s vision, which seeks to make electrification affordable.
On the surface, this is the ideal picture of a public-private partnership: a socially conscious company receives huge backing from financiers with deep pockets, which, in turn, receive an image boost. The city makes headlines for its ingenuity, and residents get heat pumps.
But not everything is as it seems.
In Giachino’s view, decarbonization cannot be achieved without help from the private sector. But without guardrails, it becomes more likely that financiers will use public assets to backstop profits—potentially at the expense of local communities.
Without guardrails, it becomes more likely that financiers will use public assets to backstop profits—potentially at the expense of local communities.
“There’s something that feels fundamentally incompatible about the private equity model and how public infrastructure is supposed to be built,” Giachino says. “They are not accountable to anyone except their investors.”
Dan Antonioli broke the silence with an opinion piece in the Ithaca Times last May, claiming BlocPower’s heat pump installation quotes were well above market price. Antonioli admitted the estimated cost could have been inflated because he resides outside the city.
“Something is really amiss here,” Antonioli tells The Progressive. “I think if there were installations and happy, satisfied customers, we would be hearing all about it.”
Not all of BlocPower’s other endeavors have followed through on the company’s affordability promise. In Oakland, California, seven out of nine buildings participating in the company’s pilot program saw increases in costs rather than savings. The results of BlocPower’s pilot program in the town of Ithaca (separate from the city) have yet to be seen.
In San Jose, city councilmember David Cohen acknowledged that the city did not have a full grasp of their climate plan despite already handing BlocPower a nearly $500,000 contract to electrify 250 residential buildings.
“We’re more in the development step, so we don’t yet know exactly how it’s all going to be put in place,” Cohen admits.
BlocPower declined to comment and denied multiple requests to make Chief Executive Officer Donnel Baird available for an interview.
And the trouble doesn’t end there.
In October 2022, Ithaca’s director of sustainability, Luis Aguirre-Torres, resigned, questioning the city leadership’s commitment to net zero. He was the brain behind Ithaca’s Green New Deal and now serves as the director of financial planning and analysis and financing solutions at the New York State Energy & Research Development Authority.
The agency has been working to lower the risk for lenders by providing different forms of credit enhancement. It also has plans to invest $6.8 billion to reduce building emissions.
“Our goal is definitely to become a catalyst, so we can incentivize private investment, but there are also public dollars being committed,” Aguirre-Torres says.
In the context of the Ithaca Green New Deal, the $4.3 billion Kresge Foundation has pledged to cover investors’ initial losses in the event of a credit default.
These programs are representative of the prevailing approach to the climate crisis. In the United States, the $370 billion Inflation Reduction Act, or IRA, is the embodiment of green capitalism: depending on market-based solutions to solve the climate crisis. The IRA’s goals are grandiose but narrow, promising tax credits for fossil fuel companies to incorporate low-carbon technology and the investors that back them.
As the Biden Administration props up the oil and gas industry by enabling new fossil fuel extraction and handing renewables over to the private sector, the absence of direct investment in public infrastructure could leave low- to moderate-income consumers behind.
Presuming that climate justice communities remain an afterthought in the grand scheme of profiting off what’s supposed to be a just transition, the greenwashing will continue at the same time as the coasts erode, the ocean acidifies, and the planet burns.