Private markets fund managers may have to create dedicated funds to continue investing in fossil fuels and maintain a credible position as sustainable investors, according to EQT chief executive Christian Sinding.
“We [the industry] probably need to create a new fund or a new strategy” to invest in hydrocarbon assets, Sinding (pictured left) said during an onstage interview at PEI Media’s Responsible Investment Forum: Europe last week. Sinding, who leads the €71.3 billion AUM Swedish GP, added that it was difficult for PE firms, having made various commitments about emissions reduction, to “all of a sudden say, ‘now we’re going to buy an oil-producing company so we can produce that oil more sustainably’”.
Amid the transition to net zero, fossil fuels will remain a major energy source for years to come. Private markets firms need to decide whether they halt investing in their production or position themselves as investing to make the fossil fuel production ‘cleaner’ during the period of transition.
“We’re going to need carbon for probably 30, 40, 50 years, and that’s going to need innovation. It’s going to need capital, it’s going to need change,” Sinding said. But at the same time, “having the most sustainable transition is a very important one”.
Private equity firms have historically been significant investors in oil and gas. While many are raising capital for energy transition-focused investments, it is not clear how some of the largest firms are changing their approach to oil and gas.
Sinding said during his interview that, while not investing in fossil fuels does not make those assets go away, deploying new capital to hydrocarbon companies today “would be very complicated” for the strategy EQT is pursuing. In October, the firm became the first private markets investor to set Paris-aligned targets approved by the Science-Based Targets initiative (SBTi).
“Given our investment strategy, I really do think it’s going to have to be targeted funds,” he explained. “How do we do that in a much more sustainable way… it’s not enough to just move capital. We have the skills and capabilities to drive that transition.”