Portfolio Company Verification (Deals and Companies)
Since private equity firms do not provide comprehensive disclosures of current or former investments, the research team builds a data set based on a variety of sources. First, we conduct an initial query of energy holdings via the private markets data provider Pitchbook. Researchers then collect additional sources to build a data set of verified current portfolio company investments for a given PE firm, including company websites, press releases, SEC and other regulatory filings, and news articles.
Private equity firms invest in portfolio companies through various strategies including leveraged buyouts, majority stake investments, minority stake investments, control or non-control investments, credit or lending investments, joint ventures, via intermediaries or directly, and others. The precise nature of each investment arrangement is often not disclosed, but these investments all provide capital to portfolio companies that enable their operations and the associated emissions and environmental impacts. A given PE firm’s current energy portfolio reflects the firm’s financial interests via any one or more financial strategies listed above to “invest in” or “own” or “back” each portfolio company, thereby facilitating the activity of the company and its assets.
The data set of current portfolio companies and assets researched by this group is typically shared with the PE firm in question ahead of any publications to collect any feedback/corrections from the firm.
Asset Verification
Once the deal and company information are verified, the next step of the process is to identify the assets currently owned by portfolio companies. This is accomplished by searching through a variety of online sources including company websites, news articles, press releases, corporate financial reports, and government databases including those from the Environmental Protection Agency (the FLIGHT tool and the ECHO database), the Energy Information Administration (Form 860), and the Pipeline and Hazardous Materials Safety Administration, and others.
Asset Categorization
Downstream: The Downstream sector focuses on energy-generating assets, and is broken down into fossil and renewable energy categories. Within the fossil category, we include coal, gas, oil, refined petroleum (gasoline, diesel, etc.), and biomass power plants. Although biomass is not a traditional fossil fuel, we included it in the fossil category based on perspectives from the National Renewable Energy Laboratory, which notes that “burning biomass releases about the same amount of carbon dioxide as burning fossil fuels.” In the renewable category, we include utility-scale energy generation technologies that utilize solar, wind, and hydropower.
Midstream: In the midstream category, we document assets responsible for storing, transporting, and processing fuels. This includes assets like pipelines, terminals, storage containers/facilities, refineries, and cryo facilities responsible for converting natural gas from a gaseous form into a liquid form. These assets can span gas, coal, oil, refined petroleum, and biomass fuel types.
Upstream: The upstream sector includes assets responsible for the original extraction of oil and natural gas from the earth, both onshore and offshore. Because of the complications frequently associated with naming an upstream extraction site, for upstream assets, we commonly make note of oil/gas production levels from the entire group of assets owned by one company in one area/basin. For example, if PE firm “XYZ” is invested in three gas extraction sites in the Permian basin through one portfolio company, we will typically group these three into one asset and label them “Permian Basin Assets” and aggregate production numbers into a single number.
Emissions Estimation
Emissions Scope: Private equity firms have impacts on the climate through both their corporate operations and their investment portfolios through direct and indirect emissions. The investment portfolio typically has far, far greater impacts, and accounts for around 99 percent of emissions. To capture the entire emissions footprint of private equity firm activities, the PECR project believes that scopes 1, 2, and 3 emissions should be disclosed both at the firm level and across the full investment portfolio.
To capture the climate impacts from a PE firm’s most carbon-intensive activities, our research activities typically focus on a subset of the investment portfolio—the fossil fuels assets of portfolio companies. We look at the emissions associated with upstream, midstream, and downstream energy infrastructure, including stationary combustion, fugitive emissions, and process emissions from portfolio companies. This means that there are elements of Scope 1 and 2 emissions from portfolio companies not included, such as the emissions associated with electricity and HVAC in their offices, and that we also exclude Scope 3 emissions related to the downstream portfolio. Thus, the emissions from a PE firm’s energy and infrastructure portfolio companies calculated by this project do not represent the firm’s total emissions, but more than likely represent the vast majority of portfolio company emissions from that PE firm.
Downstream: For downstream power plants, we collect plant capacity from public sources (such as news articles, financial reports, and company websites) and then apply average emissions factors by plant type from EIA’s Electric Power Monthly’s “Chapter 6. Capacity” data. This results in estimated generation values, which are then used in conjunction with the EPA eGRID emissions factors based on plant type to calculate more accurate emissions estimates.
Midstream: By definition, the midstream sector does not include points of fuel extraction (upstream) or points of fuel combustion/primary use (downstream). Given this, when making emissions calculations,
we do not include the emissions produced when burning the fuels themselves, and instead focus on the process and fugitive emissions associated with transporting, storing, and processing the fuels. That is, it takes energy to transport a fuel such as gas, and gas also leaks during this process, and both of these factors result in emissions attributable to the midstream sector. The utilization factor for midstream assets (e.g. pipelines, storage containers, refineries) is not always a discoverable fact throughout the research process. To make an estimate, several sources were consulted, several of which point to an annual utilization factor of 70 percent, which is applied across midstream assets where utilization factors are not found.
When calculating fugitive emissions from midstream assets, wherever possible the emissions factors from the 2019 Refinement to the 2006 IPCC Guidelines for National Greenhouse Gas Inventories, Chapter 4: Fugitive Emissions are used.
Additional emissions factors outside of the IPCC table are used when necessary. For LNG terminals, the emissions factor for the LNG liquefaction process is an average of five emissions factors from a 2020 NRDC study on lifecycle emissions of LNG. For marine tankers, the Annual Efficiency Ratio formula is utilized to calculate emissions from fuel used to power the ship. Deadweight tonnage and nautical miles traveled per year per ship are sourced from VesselFinder. AER-specific data is sourced from the annual ESG reports of those portfolio companies wherever possible. For coal storage, the emission factor for fugitive methane is an average from 52 coal sources across the United States and Canada (annual average = 0.74 cubic meters CH4/tonne coal/year) as calculated within a 2012 study conducted by Canada’s Ontario Ministry for the Environment. For biomass storage, the emissions factor is sourced from a 2018 article on the subject published in Renewable Energy and Sustainable Energy Reviews. For cryo gas facilities, the emissions factor used was calculated in 2012 by Ken Chow at energy consultancy Muse, Stancil & Co.
Upstream: The upstream emissions are calculated utilizing RMI’s OCI+ database on oil and gas supply chain emissions. Upstream and embedded fuel emissions factors by basin are utilized. Where a specific basin is not available in the database, we source the closest nearby basin in the OCI database. When we do not have information on a particular basin owned by the portfolio company, an average of all upstream emissions factors for basins that the PE firm in question in invested in is applied. Additional upstream data is cross-referenced from Carbon Tracker Initiative using Rystad Energy data, which uses emissions factors that are broadly in line with the IPCC’s Guidelines for National Greenhouse Gas Inventories.
Comprehensive (Upstream, Midstream, and Downstream): To calculate a comprehensive emissions number, steps are taken to avoid double counting emissions associated with upstream and downstream emissions. Upstream emissions calculations incorporate the emissions content of the fuels themselves. If these embedded fuel emissions are then counted again in the downstream sector, this would be a double count. To avoid this when calculating the comprehensive total, marginal downstream emissions are only added to the total when the downstream values exceed the upstream emissions values for a given fuel type (e.g. downstream gas plants and upstream gas extraction).