CEO DailyCFO DailyBroadsheetData SheetTerm Sheet

Could divesting from oil companies be worsening environmental problems? Carlyle Group makes that case

May 26, 2022, 10:35 AM UTC

Good morning,

As ESG is top of mind for companies and stakeholders, divesting from fossil fuel companies has become a common practice. But new research suggests that investing in these companies is more likely to yield “the greatest planetary benefits.”

The Carlyle Group’s new report, The Inclusive Approach to Energy Transition, debuted at The World Economic Forum’s 2022 meeting in Davos, Switzerland this week. Carlyle, one of the largest global investment firms, conducted the research to provide an empirical assessment of whether the “very well-intentioned” efforts of asset managers, and some owners of capital institutions, divestment from fossil fuels is actually effective, says Jason Thomas, the firm’s head of global research.

“The decision to decarbonize portfolios doesn’t necessarily lead to the decarbonization of underlying economic activity,” Thomas says. “In fact, in many cases, what we’ve seen is that by depressing the supply of energy, it’s increased its price. And the price increase, in many cases, has actually made these fossil fuel companies increase their free cash flow substantially.”

So, it may not matter to large oil and gas companies if they’re “starved of external sources of finance” because they’re generating so much cash flow internally to meet all of their capital spending, Thomas explains. 

“There’s a lot of ways this free cash flow can be used to decarbonize the real economy,” he says. “But those sorts of initiatives are hard to pursue if one has made the decision that you’re not going to invest in that space.”

The study points out that with all the divesting that has taken place, 80% of economic life is still powered by fossil fuels, which includes over 95% of all transportation. 

“We think the biggest decarbonization potential comes from the most carbon-intensive companies,” says Megan Starr, the global head of impact at Carlyle. “As a firm, we’re not focused on this binary of ‘good company, bad company’ or ‘green company, brown company,’” Starr explains. Carlyle’s CEO Kewsong Lee has been “very clear from the beginning that impact is a process, not a product,” she says. The firm is focused on “how we can change companies over our hold period,” Starr notes. Carlyle creates a growth plan for a company to help them “mature on the dimensions of sustainability,” Starr says. 

“We’ve been much more focused on what is that trajectory for individual companies and assets?” she says. “Versus looking at it at this portfolio level, which really doesn’t give you an accurate picture of that change over time thesis.”

Carlyle is planning to get to Net Zero by 2050. “That may sound too slow, but real and lasting change takes time and discipline,” Lee wrote in a recent Fortune opinion piece. Carlyle’s commitment “also sets near-term goals across our majority-owned power and energy portfolio companies,” Lee wrote. “75% of Carlyle’s portfolio companies’ Scopes 1 and 2 emissions will be covered by Paris-aligned climate goals by 2025. After 2025, all new majority-owned portfolio companies will set Paris-aligned climate goals within two years of ownership.”

But the U.S. Securities and Exchange Commission’s (SEC) pending rules for mandatory climate-risk disclosures by public companies may have an impact on a move from divestment to investment in fossil fuel companies. The SEC has extended the public comment period on the measures to June 17. In the comments, an anonymous CFO wrote a statement in disapproval of the proposal: “The SEC was formed to protect shareholders, but when I apply this rule to my business all it does is harm shareholders given the projected costs.”

However, in reaching climate change goals, the total shunning of investing in fossil fuels companies isn’t the answer, according to Starr. “If you want to decarbonize the global economy, you have to go to where the carbon is,” she says. 

Let me know your thoughts on this topic.

See you tomorrow.

Sheryl Estrada

Big deal

VergeSense’s 2022 State of the Workplace Data Report is based on an analysis of workplace space utilization across 550 buildings globally, which includes over 100,000 spaces. Between Q1 2021 and Q1 2022, the percentage of office utilization has more than doubled, the report found. Prior to the pandemic, on average, 10% of spaces on each floor were collaborative, according to VergeSense, a workplace analytics platform. Currently, 25% of spaces per floor are dedicated to collaboration. The report also found that Tuesday and Wednesday are the busiest days at the office with almost 50% of all weekly utilization taking place on these days.

Courtesy of VergeSense

Going deeper

In the Knowledge at Wharton article, Surviving ‘Tech Bubble 2.0’: What High-growth Companies Should Do, Wharton’s David Erickson explains the challenges in a market that has some similarities to the dot-com bubble of 2000.


Jody Holt was named CFO at Physicians Resources LTD (PRL). Holt brings to PRL more than 25 years of experience in finance and operations. She has served as the CFO at numerous companies, including Covenant Living. Holt began her career with PricewaterhouseCoopers (PwC).

Erica Naidrich was named CFO at Troika Media Group, Inc. (Nasdaq: TRKA), effective immediately. Christopher Broderick, previously CFO and COO, will remain as COO of Troika Media Group. Prior to joining Troika Media Group, Naidrich served as VP of accounting and controller for Madison Square Garden Entertainment Corp, a leader in live sports, entertainment and programming. Prior to her role at MSG, she held controller roles at technology and e-commerce companies.


“As we look at global GDP ... it's hard right now to see how we avoid a recession. The idea of energy prices doubling is enough to trigger a recession by itself.”

—World Bank president David Malpass said on Wednesday at an event hosted by the U.S. Chamber of Commerce that the war in Ukraine—and its impact on food and energy costs—could be a catalyst for a global recession, as reported by Fortune

This is the web version of CFO Daily, a newsletter on the trends and individuals shaping corporate finance. Sign up to get it delivered free to your inbox.