21 PE Firms: A Gigaton of Carbon
Gigaton (n.) (ˈgɪg əˌtʌn): a unit of measure representing one billion tons. A thousand million tons. Now, let’s put it in a factually accurate sentence: The companies backed by just 21 private equity firms were responsible for over a gigaton of carbon dioxide-equivalent (CO2e) emissions in 2023 throughout their value chains.
That’s more than the carbon spewed by every single plane that flew in 2019, before the pandemic plunge. It’s nearly four times the emissions from the energy used to power all the homes in the United States in 2023. The companies of a cadre of only 21 firms, whose investments in hundreds of fossil fuel companies are often invisible in the absence of mandatory disclosures, pumped out twice as much CO2e as the whole nation of Canada – home to moose, hockey and over 3 million barrels of heavy oil produced every day.
And, if transactions like Carlyle’s near-billion-dollar buyout of Energean’s oil and gas assets earlier this year is any indication, private equity – the financialization machine that turns money into planet-warming gas – isn’t on the road to stopping anytime soon.
The Private Equity Climate Risks Project, a consortium of researchers from Americans for Financial Reform, Private Equity Stakeholder Project and Global Energy Monitor, pulled back the curtain on the private equity industry’s outsized, underreported carbon footprint. The group released its 2024 Private Equity Climate Risks Scorecard & Report, which ranked 21 private equity firms with around $6 trillion in assets under management based on their adherence to climate standards. Spoiler: it didn’t look good for PE.
Some of the key findings:
The energy portfolios of leading private equity firms are responsible for 1.17 billion metric tons of CO2 equivalent emissions, concentrated in sectors like upstream fossil fuels, Liquified Natural Gas (LNG) terminals, and coal plants. The lion’s share comes from their upstream operations – oil and gas extraction, representing hundreds of millions of emissions.
Most firms received C's, D's, and F's on their carbon report card. The worst performers were EIG, Quantum Energy and Kayne Anderson. Large private equity firms, like Carlyle, KKR and Blackstone earned D's and C's. Many of these firms hold hundreds of fossil fuel assets, including those that directly harm frontline communities.
Said AFR’s Oscar Valdés Viera: “Private equity firms buy up oil fields, pipelines, and gas terminals while the rest of us breathe toxic air, face catastrophic fires and floods, and try to plan for an uncertain future.”
In many cases, it’s done with public employees’ retirement money. When private equity firms take the cash from workers’ pensions and push it into carbon-belching projects like oil extraction and coal plants, they’re forcing the country’s teachers, postal workers, and more into helping finance harms against their own world and communities.
But don’t worry. Solutions are modest: like covering France (yes, even Paris) twice over with 317 million acres of pine forest to sequester all the CO2 the firms’ portfolio companies push out every year. Easy, right?
BANKING AND FINANCIAL STABILITY: Capital Requirements – Is Visa Too Huge? – Big Banks and High Rates – A Cap on Wells Fargo – Commercial Real Estate
CONSUMER: Credit Unions and Overdraft – Seniors, Servicemembers and Student Loans – Servicemember Affairs – Medical Debt – Predaotry Payday – Debt Collectors and the Deceased – Remittances – Out-of-State Rates – Election Mail – The Language of Finance – Well, Well, Zelle – Rent-a-Bank – Digital Scams
CAPITAL MARKETS: Executive Compensation
PRIVATE MARKETS: PE and an Explosion of Poison Gas – Private Credit – Retail Private Credit Investors – One of the Biggest (PE) Dividends Ever – Doctors vs. Private Equity – Accounting for Roll-Ups – Private Equity and Deaf Assistance
CRYPTO: Crypto and Human Trafficking – Forcing the SEC? – Crypto-Mangos
HOUSING: Suspended Counterparties – Futureproofing the FHLBs
CLIMATE AND FINANCE: The Insurance Disaster – Carbon Market Guidance
POLITICS AND MONEY: How They Voted – Crypto Cash – Seeking Favor with Harris
Feedback? Reach us at afrnews@ourfinancialsecurity.org
BANKING AND FINANCIAL STABILITY
Capital Requirements.
It’s been a few weeks since the Fed capitulated to big banks on the Basel III Endgame, opting to scale back previously proposed requirements. Since then, the Fed and FDIC haven’t engaged in any “active or substantive negotiations” on finding a way through the stalemate.
Related: A paper from the NY Fed, Richmond Fed and International Monetary Fund finds that additional bank capital requirements reduce the likelihood of gross domestic product retraction over a year. That is to say: safety cushions make the economy stronger.
Is Visa Too Huge?
The Justice Department sued card payment processor Visa over alleged antitrust violations, stemming from the company’s purported practice of penalizing its merchant customers who try to use competitors’ services to process payments. If that wasn’t enough: The yearslong probe also unearthed an alleged scheme to pay tech rivals to stay out of the debit card market. AFR calls the lawsuit a “necessary” step to challenge the company. Said AFR’s Patrick Woodall:
“Visa’s strategy is built around reducing choices and raising prices for cardholders while increasing costs for small businesses. Visa wields its market power to extract value from merchants and customers and that ultimately raises prices for everyone.”
Big Banks and High Rates.
The Fed held rates high for two and a half years – it helped banks profit by $1.1 trillion in interest revenue. While the Fed gave out high yields for banks who parked their deposits at the Fed, many of the same banks kept interest rates for depositors far lower — savers earned little and banks got to keep the difference. In Europe, regulators imposed a windfall tax on banks who enjoyed the higher rates.
A Cap on Wells Fargo.
Almost seven years ago, the Fed imposed a cap on Wells Fargo’s assets, enforcement taken in response to the too-big-to-fail bank’s rap sheet of consumer abuses and lapses in compliance. And that isn’t just from making millions of fake accounts under real customers’ names — see this resource from AFR to walk through over a decade of misdeeds. Now, Wells Fargo has submitted a third-party review of its risk management overhauls to the Federal Reserve and is asking the Fed to lift the $1.7 trillion cap.
Commercial Real Estate.
The commercial real estate industry is sighing with relief as interest rates begin to fall, but it's too late for the tycoons who borrowed too much. The Federal Reserve’s rate cuts will help some borrowers refinance, but landlords are still facing significant financial distress with the value of real estate loans in foreclosure nearly tripling this year. Bad real estate loans could endanger the financial industry if things worsen — and apartment building owners could try and jack up rents, gouging tenants and contributing to the housing crisis, to cover their earlier speculative real estate loans.
CONSUMER
Credit Unions and Overdraft.
While the majority of credit unions have low or no reliance on overdraft revenue – in sharp contrast to how their larger rivals gorged themselves on $5.8 billion in fees in 2023 – some credit unions stood out as “overdraft addicts,” which pulled in most of their profits from overdraft, according to Aaron Klein of the Brookings Institute. In 2023, for example, overdraft fees at First National Bank Texas and Gate City made up 186% and 178% of profits respectively. Credit unions with over $10 billion in assets with the low-income designation average nearly $40 in overdraft fees. AFR and other organizations have previously highlighted how overdraft fees harm Black, Latine and lower-income consumers.
Seniors, Servicemembers and Student Loans.
The National Consumer Law Center (NCLC) and New American Foundation found that older Americans, many of whom have “very low incomes,” have over $125 billion in student loans. Over the past two decades, the number of seniors with student loan debt has grown six-fold and the amount they carry has increased twenty-fold.
And: A CFPB report spotlighted the challenges that servicemembers and veterans face with student loans. Findings include:
Servicemembers spend hours trying to reach their loan servicers. When they finally get through, the calls often fail to resolve the issue, especially for servicemembers stationed overseas.
Many servicers incorrectly calculate servicemembers’ monthly payments under the Income-Driven Repayment program, leading to unnecessarily high charges.
Colleges and universities often withhold transcripts, which may prevent servicemembers and veterans from securing promotions and employment or completing their degrees.
Servicemember Affairs.
Speaking of servicemembers: The CFPB issued its annual report on problems impacting servicemembers. The top complaints in 2023 pertained to credit and consumer reporting, debt collection, checkings/savings accounts and savings. In the last three of those categories, servicemembers experienced more complaint-worthy incidents than the average consumer. Fewer than 1% of the first two were closed with monetary relief.
Medical Debt.
AFR applauds the CFPB’s proposal to wipe medical debt from credit reports, as well as recent agency guidance to help keep families from being targeted by illegal medical debt collection tactics. The advisory reminds debt collectors that they’re violating federal law when they collect on inaccurate or “legally invalid” medical debts, like when they double-dip to get paid for services already covered by insurance or misrepresent consumer rights. Said AFR’s Christine Chen Zinner:
“Medical debt erodes savings, causes families to cut back on essential expenses like groceries and health care, and negatively impacts the credit scores that are gatekeepers for participating in the U.S. economy.”
And: Last week, the White House convened people affected by medical debt and experts and advocates in the field to highlight the Biden administration’s efforts in this area. Fifteen million people in the United States have medical debt collections on their credit reports and nearly 140 million people have faced medical financial hardship due to out-of-pocket health care bills.
Predatory Payday.
Reps. Bonamici and Jayapal and Sen. Merkley unveiled the Stopping Abuse and Fraud in Electronic (SAFE) Lending Act of 2024, which would defend consumers against predatory online payday lenders. Many of these obfuscated lenders are able to evade enforcement after using “lead generators” (programs that help marketers target users) to drain victims’ bank accounts. The bill would give consumers more control over their bank accounts by stopping third parties from being able to access a consumer’s account through remotely created checks, require all lenders, including banks, to follow state small-dollar loan rules, and have these small dollar lenders register with the Consumer Financial Protection Bureau and ban lead generators from collection payday loan applications and then auctioning them off to payday lenders.
Debt Collectors and the Deceased.
Surviving spouses often face emotional and financial hardship after losing a partner, yet that doesn’t keep some debt collectors from knocking at their doors, claiming unpaid medical bills and ruining their credit scores in the process. While state laws often protect surviving spouses in most circumstances, debt collectors use scare tactics to pressure survivors into paying without considering or even understanding the legal nuances. Strict enforcement of a new CFPB rule to ban medical debt from credit reports could bar collectors from circumventing the law and allow widows and widowers to grieve in peace.
Remittances.
In a new proposed rule, the CFPB wants to make sure consumers who send remittances (cash often sent abroad to, for example, families of diasporic communities) know how and to whom they can direct questions and complaints – the remittance transfer provider’s state licensing agency and the CFPB – by enhancing the disclosures found on receipts and statements.
Out-of-State Rates.
Thirteen states and D.C. urged the Tenth Circuit Court of Appeals to stand behind a Colorado law that caps the annual percentage rate (APR) of out-of-state loans made – often by fintechs – to the state’s residents at 36%. The case is on appeal after a district court judge ruled in June that Colorado could only apply its usury laws to lenders within the state.
The National Consumer Law Center (NCLC) and Center for Responsible Lending (CRL) filed an amicus brief in support of Colorado’s interpretation of its law. The brief argues that since Colorado opted out of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA), it is allowed to enforce the law.
Election Mail.
In a letter to Postmaster General Louis DeJoy, the National Association of State Election Directors, National Association of Secretaries of State and 29 local election official associations expressed concerns about the delivery of election mail as the country nears the 2024 presidential election. The groups claim that no improvements have been made to address their concerns despite engagement with the Postal Service, and that the delays and errors they flag have disenfranchised voters. Said AFR’s Annie Norman: “We just believe that somebody’s ZIP code shouldn’t determine their ability to participate in democracy,” speaking to variations in state-by-state rules and regulations.
Norman and RuralOrganizing.org’s Shawn Sebastian wrote an op-ed for The Daily Yonder, decrying DeJoy’s postal service plan for writing off rural America. Urban areas might see increased speed, but only at the cost of everything outside of those areas moving slower.
The Language of Finance.
NCLC highlighted the importance of the CFPB’s proposed language access requirements, a set of guidelines that hope to address the needs of consumers with limited English proficiency. In a new report, Cracking the Code: Understanding and Overcoming Language Barriers in Consumer Finance, the NCLC flagged the harms inherent in a financial system without “meaningful language access” – from overburdening family members to exposing consumers to abuse and deception. The organization made policy recommendations in three key areas: consumer reporting and tenant screening, debt collection and loan servicing.
Well, Well, Zelle.
JPMorgan Chase is threatening to sue the U.S. government over scams on Zelle, the peer-to-peer payment platform. The CFPB is investigating the bank for failing to remove criminal accounts and compensate scam victims. Banks are looking to conservative courts to water down or ignore statutes that authorize regulatory power over banks. While big corporations and banks are busy pointing fingers at each other, consumers are left vulnerable, facing higher fees and greater risks.
Rent-a-Bank.
In rent-a-bank arrangements, high-cost nonbank lenders partner with in-state banks to evade rate caps on installment loans and lines of credit. The NCLC created a High-Cost Rent-a-Bank Loan Watch List to track the banks and their partners making these shady arrangements across the country.
Digital Scams.
The 2024 Cyber Readiness Report from Consumer Reports finds that Black and Latine customers are over twice as likely as white consumers to have lost money to a digital scam or cyber attack – 14 percent and 13 percent, respectively, compared to 6 percent of white people. The report suggests that Black and Latine consumers may be more likely to use forms of payment with fewer legal protections and experienced higher rates of being unbanked or underbanked.
CAPITAL MARKETS
Executive Compensation.
The SEC’s Gensler says he’s all for executive compensation controls to curb risk-taking at banks, a still-outstanding piece of the 2010 Dodd-Frank Act yet to be finalized fourteen years later. But he’s waiting for the Fed to move on it jointly, after the FDIC, OCC, FHFA, and NCUA all signed onto an effort to push a rule earlier this year.
PRIVATE MARKETS
PE and an Explosion of Poison Gas.
A Georgia-based chemical plant with a recent history of blasts, fires and workplace safety violations exploded on September 29, spewing toxic clouds of chlorine gas skyward and forcing the evacuation of 17,000 people. The facility is owned by BioLab, Inc., owned by parent company KIK, which is itself owned by private equity firm Centerbridge.
Two and a half months ago, KIK announced it would be selling BioLab’s sister company to fund an $850 million dividend to Centerbridge’s investors. KIK should probably put that $850 million toward cleaning up its chemical disaster and shoring up the operational safety of BioLab.
Private Credit.
Private credit, a $2.1 trillion sector, threatens to overburden companies with heavy debt and the economy with systemic risk, according to AFR’s Andrew Park. This kind of credit comes in the way of entities affiliated with hedge funds or ever-opaque private equity firms who extend loans to corporations. They resemble bank loans with one crucial difference: regulators can see into bank loan books, but there’s no regulator for private credit in a similar manner. The growth of the sector is fueling leveraged buyouts and corporate refinance loans coming due, the lenders often seeking to reap fees off the loans they make. Said Park:
There is increasing concern that risky private credit loans could seep into other financial institutions that could be exposed to private credit as co-investors. We know very little about the growing business between traditional banks and private credit, other than — to borrow the words of Bloomberg News — it is a “frenzy.”
On the topic of private credit: Citigroup has teamed up with private equity megafirm Apollo in a foray into the private credit market. The two struck a deal to arrange financing for $25 billion worth of deals from corporate and private equity clients over the next half-decade.
Retail Private Credit Investors.
Apollo, BlackRock, Capital Group, KKR and State Street want to get their hands on retail investor money using private-credit exchange-traded funds and other retail products. They still have to come up with the product and win over regulators who have thankfully resisted letting private equity firms pick the pockets of retail retirement savers.
One of the Biggest (PE) Dividends Ever.
A company backed by Clayton, Dubilier & Rice, Hellman & Friedman, BlackRock and GIC is poised to deliver a gargantuan €4.4 billion dividend, one of the largest debt-fuelled payouts in private equity history. Windshield repair company Belron plans to take on €8.1 billion in new bonds and loans, diverting over half of that in a cash dividend to its investors. The company’s overall debt will almost double.
Doctors vs. Private Equity.
Private equity firms continue to invade healthcare. But doctors are standing up to these deep-pocketed bullies by forming advocacy groups to resist corporate influence.
With nearly $1 trillion invested since 2012, many doctors feel like pawns in a Wall Street game. Some argue that corporate money can help practices thrive, but 61 percent of physicians have an unfavorable view of private equity. Patient care should never be just another profit line item. Groups like Take Medicine Back are rallying to protect clinical autonomy and ensure patient care remains the focus.
California Governor Gavin Newsom vetoed a bill that would have allowed the attorney general to block private equity healthcare deals. Private equity firms spend $20 billion annually on healthcare in California.
Accounting for Roll-Ups.
Buyout groups are eyeing expansion across international borders in the accounting profession. The trend reflects private equity's growing interest in capturing stable audit revenues and the potential to consolidate fragmented markets. But there are concerns about damaging incentives and undue influence from private equity, potentially compromising audit quality and long-term stability for companies using these auditors and even shareholders, as we saw in the Enron meltdown. With rapid expansion, the risk for legal missteps and limited future buyers could keep companies trapped with few to no exit strategies available.
AFREF submitted comments to the Federal Trade Commission and Department of Justice on serial acquisitions and roll-up strategies and their impact on competition, the market, workers, consumers, and communities.
Private Equity and Deaf Assistance.
When people who are deaf or hard of hearing need communications assistance, they might be referred to telecoms companies that connect people to sign language interpreters. The infrastructure is funded by the federal government, but the two companies at the forefront of the industry — Sorenson Communications and ZP Better Together — are backed by private equity firms, including megafirm Carlyle, among others.
CRYPTO
Crypto and Human Trafficking.
A recent academic study reveals how major crypto exchanges like Binance, OKX, and Huobi serve as exit points for funneling $75.3 billion in criminal funds tied to the crypto-driven scam known as romance scams, or “pig butchering.” Scammers foster online relationships with unsuspecting individuals who are then duped into investing in fake crypto investment products, only to have the money stolen. And, the scammers are often victimized themselves - tricked or forced into working for criminal enterprises who run these massive scam operations. Crypto is the engine that makes these scams run; in particular, cryptocurrencies such as Tether, which offers both opacity and relative stability, are popular vehicles to facilitate such scams, then launder the proceeds. Even customer funds from more well-known exchanges such as Coinbase and Crypto.com are drawn into the illicit financial flows associated with these scams.
Forcing the SEC?
Usually, the SEC has viewed digital assets as securities. Mainly because, in many cases, they act like securities when bought and sold. With help from Eugene Scalia, however, former SCOTUS Justice Antonin Scalia’s son, the crypto exchange Coinbase is trying to force the SEC to “create new rules that would govern digital assets,” according to Bloomberg. Scalia argued that the SEC offered no explanation for denying the exchange’s request for clarified standards for determining when digital assets were securities. Coinbase has often suggested its investment products aren’t securities. The SEC countered that the industry’s case ”does not present the rare circumstances that could warrant such an extraordinary remedy” and that existing securities rules and laws are adequate for the regulation of digital assets. As academic Lee Reiners pointed out in his testimony before Congress earlier this month on the SEC’s enforcement record, “Federal courts have repeatedly confirmed the SEC’s jurisdiction in numerous crypto-related enforcement actions. In fact, the SEC has brought close to 200 crypto-related enforcement actions and has won, or settled, the vast majority of them.”
Crypto-Mangos.
Mango DAO, Mango Labs LLC and Blockworks Foundation will destroy their MNGO crypto token and pay $700,000 as part of a settlement with the SEC over charges that the entities offered unregistered broker services and that MNGO was an unregistered security.
HOUSING
Suspended Counterparties.
The Federal Housing Finance Agency (FHFA) reproposed a rule to tweak its Suspended Counterparty Program (SCP), under which the FHFA can suspend an individual or entity from doing business with entities under the purview of the agency. AFREF joined with the National Housing Law Project to comment in support of the original rule, which would enable the FHFA to hold the landlords whose loans they guarantee responsible for fraudulent activities that harm their tenants. The re-upped rule would nix FHFA’s original proposal to allow for immediate suspension orders and clarifies the categories of misconduct on which they could base a suspension.
Futureproofing the FHLBs.
The FHLB system, established in 1932, has historically provided vital liquidity to mortgage lenders. But it has been shifting its priorities away from housing activities over the years. The Federal Housing Finance Agency (FHFA) has come to the rescue to remind the FHLB system’s mission about why they exist and who they serve, with its “System at 100” initiative. The initiative aims to engage stakeholders to address housing and community development needs. The Coalition for Federal Home Loan Bank Reform is one group, of which AFR is a part, that has done advocacy around making the system work in the interest of housing justice.
CLIMATE and FINANCE
The Insurance Disaster.
The climate catastrophe is giving way to an insurance disaster, one that could prove to be the “next big economic shock,” according to Yahoo News editor David Knowles, for the United States as premiums shoot through the roof and some insurers pull out of climate-fueled disaster-stricken areas altogether (that’s called bluelining, and AFR’s Jessica Garcia has written about it here). Two of three American homes are now underinsured, and people of color are disproportionately living in areas at greater risk of destruction due in part to the long history of racist redlining practices that continue to this day. All the while, insurers continue to insure and even invest in the fossil fuel companies contributing to the brewing “insurance apocalypse.” Hurricane Helene, a billion-dollar storm, exposed the “deep flaws” in American disaster insurance; much of the damage won’t be covered by insurance, because the inland homeowners lacked flood insurance.
The Climate & Community Institute offered up a policy vision for housing resilience, recognizing that the insurance crisis impacts people unequally and that people are at risk of loss from multiple hazards. They propose the creation of Housing Resilience Agencies that provide fair and equitable public disaster insurance, coordinate disaster risk reduction, address market failures, and create risk models and advisory/governing boards to inform decision-making.
Carbon Market Guidance.
The Commodity Futures Trading Commission (CFTC) issued final guidance that outlines the terms and conditions that should be considered by designated contract markets when they list voluntary carbon credit derivative contracts. While they’ve acknowledged the serious shortcomings in transparency and integrity, the guidance alone ultimately fails to prevent fraud and manipulation. Said AFREF’s Jessica Garcia:
“The transparency and accountability challenges of the voluntary carbon market will likely persist despite a recent round of voluntary efforts to clean up the market, particularly when it comes to the climate and social impacts of carbon credit projects, leaving the derivatives market open to fraud and manipulation.”
POLITICS and MONEY
How They Voted.
AFR released a report, How Members of the 118th Congress Voted on Taming Wall Street and Protecting the Public Interest, providing a snapshot of how every member of Congress voted on consumer and housing protections, corporate governance, climate financial regulation, capital markets and investor protections, financial technology and cryptocurrencies, systemic risk and financial stability, and other financial industry-related measures during the first session of the 118th Congress. Said AFR’s Oscar Valdés Viera:
“These votes are very revealing. They show that the majority in this Congress sought to empower financial industry lobbyists and corporate interests while leaving everyday people more vulnerable to fraud and abuses by big banks, predatory lenders, and crypto scammers, and exposing investors, particularly retail investors, to increased private markets and climate financial risks.”
Crypto Cash.
Can the cryptocurrency industry tilt the scales in the Ohio Senate race? Well, it already is! Republican candidate Bernie Moreno has received over $38 million in backing from the cryptocurrency industry. Moreno’s Democratic opponent, Sherrod Brown, is a prominent crypto critic.
Related: As cryptocurrency floods into Ohio's political scene, millions in campaign contributions raise serious questions about voter impact and regulatory agenda. With $174 million in crypto spending nationally in the 2024 elections and $4 billion lost to crypto fraud in 2023 alone, AFR’s senior policy analyst, Mark Hays, cautions that a handful of wealthy crypto insiders could push policies that leave Ohioans vulnerable to scams.
On the topic of crypto bros: Come visit Estado de la Red, a tax-free paradise, where tech billionaires rule, laws are optional, and the government can’t touch you — what could go wrong? Coinbase CEO Brian Armstrong, Washington’s newest tech pet, is pushing not just for crypto-friendly laws, but for a radical shift in global politics. Armstrong is a member of a growing tide of right-aligned tech bros that believe in “Network States,” independent, tech-driven societies that operate outside of government control.
Seeking Favor with Harris.
Wall Streeters supporting Harris are pushing hard, while campaign contributions are flowing before the election, to lock in promises of more friendly regulators — and especially getting rid of the FTC’s Lina Khan and the SEC’s Gary Gensler. The Wall Street contributors are hinting that Harris is making promises behind closed doors. The Harris-Walz campaign says she’s talking policy not personnel — but it’s not standing behind Khan and Gensler either.