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Blog Post | March 8, 2021

Attn John Kerry: Mark Gallogly Is Loyal To Profit, Not Climate

2020 Election/TransitionClimate and EnvironmentForeign PolicyPrivate Equity
Attn John Kerry: Mark Gallogly Is Loyal To Profit, Not Climate

John Kerry, President Biden’s international “Climate Envoy”, appears to want bold climate change policy. Kerry was a leader in developing the framework for the first UN climate talks in 1992, co-authored cap-and-trade legislation back in 2009 when it could have possibly been useful, and was a major driver of the 2015 Paris Agreement. 

It is clear that Kerry cares deeply about climate action and desires that his legacy reflect a successful 180 degree shift from planetary demise to a sustainable world. 

But Kerry has made an enormous mistake, which bodes ill for strategically executing on these ambitions. Axios reported this week that Mark Gallogly, a private equity mogul with investments in both Puerto Rican debt and California wildfire-causing electrical utility PG&E, was set to join Kerry’s international climate team. 

Gallogly spent 16 years at Blackstone, the world’s largest private equity firm, and founded Centerbridge, an investment firm known for its “distressed private equity business.” That’s typical Wall Street jargon meant to mask the actual bread-and-butter behind Centerbridge’s profits, which is the same as what he learned at Blackstone: find a mid-size business, borrow a ton of money to buy it and transfer the debt onto the company’s balance sheet, then ruthlessly fire staff, sell any profitable assets, and generally strip the company for parts all to line the private equity firm’s pockets. Once the company is a bare husk, take it public before it declares bankruptcy, and rinse and repeat. As an old HuffPost video highlighted, there’s not much difference between the private equity model and a mobster running a protection racket. The only difference is that Gallogly and pals use lawyers instead of guns. 

The reality of this practice is somehow even worse than it sounds. Centerbridge, under the leadership of Mark Gallogly, infamously acted as a “vulture fund” that bought Puerto Rican government debt for “pennies on the dollar.” Even after Hurricane Maria’s devastation, these vulture funds forced a brutal austerity regime on desperate Puerto Rican citizens, all to make their millions. Gallogly clearly knew this was horrible, so he concealed his debt vulture status through shell companies, hiding his cruelty instead of just refusing to make his money. 

Centerbridge has also bought shares and bonds in PG&E, the California electric utility. PG&E’s equipment has set off more wildfires than any other company in the state, and courts have repeatedly found it ignored fire risks in favor of profits. PG&E caused five of California’s 10 most destructive fires since 2015. Meanwhile, Centerbridge also bought $200 million in insurance claims against PG&E, then financed Mikal Watts, a lawyer who represented 16,000 fire victims in a suit against PG&E. The fire victims eventually won a deal that was originally supposed to be $13.5 billion but was ultimately only $11.9 billion. Why? Because PG&E paid out some of the allotment in shares of their own company (which victims could sell, albeit for less than their initial worth). 

In other words, Gallogly — the man whom Kerry is trusting to help save the planet from future natural disasters — not only invests in a company that breeds natural disasters, he bought direct leverage over the lawyer trying to hold him accountable for it. Hello, conflict of interest!

Gallogly’s sixteen years at Blackstone unfortunately paint no more rosy of a picture. He worked his way up to lead the firm’s entire private equity business and serve on the management committee. Gallogly apparently mentored four of the men now on Blackstone’s management committee, including the current President and COO Jonathan Gray. 

Mentoring one of the heads of Blackstone is possibly the furthest one could get from being a strong climate leader. Blackstone now owns two Brazilian firms which are a “driving force” behind deforestation in the Amazon rainforest, according to The Intercept. Blackstone is also a major investor in the fossil fuel industry itself — it provided 75 percent of the equity to create Cheniere Energy Partners, which runs the US’ largest LNG export terminal. It also took partial ownership of the company behind the Dakota Access Pipeline during the COVID-19 related oil and gas downturn and recently bought out Tallgrass Energy, driver of a controversial $2.5 billion crude oil export terminal in Louisiana. No sign of climate leadership here.

The UN directly accused Blackstone in 2019 of fueling a global housing crisis by exploiting tenants, forcing “aggressive evictions,” and shrinking the amount of affordable housing. Much of that is related to its former money-maker Invitation Homes, which bought up millions of foreclosed homes during the Great Recession and turned them into rental properties. Invitation Homes is the worst landlord you’ve ever had, at a global scale: reports are legendary of the firm refusing any basic maintenance on its millions of properties, while constantly inventing new fees and justifications for rent hikes.

Since 2000, Blackstone and its portfolio companies have paid nearly $150 million in penalties for violations related to wage and hours, workplace safety, and labor relations. It also has a long history of laying off employees at companies it acquires. (That’s a core part of the pillaging inherent to the private equity model: money going toward worker salaries is money that isn’t going into the private equity fund’s wallet.) In April 2020, at the height of the COVID-19 crisis, Blackstone sought to profit by cutting emergency room staff hours for a medical staffing company it owns, which is also a major participant in surprise medical billing. This is Mark Gallogly’s legacy, the firm through which he established the reputation he’s now parlayed into a seat at global climate talks. 

A spot on Kerry’s team does not require Senate confirmation. But as fellow Wall Streeter Antonio Weiss knows after being blocked for a confirmable position then installed for a different influential position regardless, a hearing process on the Senate floor does not dictate the importance of a position. Kerry’s role in particular involves a lot of handshakes with international leaders, from foreign dignitaries to CEOs. Staffing Kerry thus gives a global deal-seeker like Gallogly plenty of opportunity to both seek out business opportunities worldwide and weaken the many multilateral agreements needed to combat the climate crisis — better for business is almost always worse for the planet. 

“Hiring someone with Gallogly’s experience is an indication Kerry plans to leverage markets and investing strategies to address climate change,” Axios reported. In a world interlinked by Washington Consensus-style global capitalism, utilizing markets is an inevitable and potentially helpful part of the climate solution. But the type of investing strategies Kerry seems to be leaning toward aren’t the way to do it: markets stop fueling Big Oil when they are forced to by regulatory authority, not out of incentives and posturing. Indeed, Mike Bloomberg’s own Task Force on Climate-Related Financial Disclosures has found the only region of the world whose companies have adopted even minimal climate responsibility into their market disclosures is Europe. Why? Because the European Commission set doing so as a best practice, generating a tacit threat to companies who refused to comply.

Kerry’s back-slapping validation of large financial institutions is therefore quite concerning, given what we know about the (lack of) human rights standards upheld by these institutions. Just as concerning is Kerry’s friendliness towards shell companies known as “SPACs”, or special purpose acquisition companies. SPACs, which are literally  companies that have no products or assets, and exist solely as an end-run around all the disclosures related to going public, are creating an increasingly risky bubble. In fact, as Americans for Financial Reform said, “SPACs have already lost investors money, are full of distorted incentives, & evade longstanding rules.” Publicly associating green energy development with these purely speculative legal fictions, which will likely collapse at some point soon, will provide an ideal opportunity for fossil fuel actors to leap onto Fox Business, claim green investment is a giant swindle, and re-legitimize their climate-devastating practices.

In other words, as we have previously written, “if free-market capitalism was going to catalyze the ‘rapid and far-reaching’ changes needed to avert the worst effects of climate change, it already would have. Only a strong, dedicated government acting with serious urgency can force the self-preservation needed for survival.”

John Kerry has both a bold mandate and an apparent desire to curb climate change and create a better world. But if he continues staffing with people like Mark Gallogly, his legacy (not to mention the fate of the entire planet), will be shot. 

Gallogly’s past indicates that any climate preservation he would actually advocate for would be climate preservation (and profit) for the rich, at the expense of a burning world for the rest of us. If he didn’t care when Puerto Ricans lost their entire lives after a devastating hurricane, what makes Kerry think he’d feel any different toward Haitians, or Bahamanians, or Bangladeshi people, or anyone else living in an immediately climate-exposed country? With no evidence to prove otherwise, placing Mark Gallogly in a position of power would be astronomically harmful. Climate action must not sacrifice vulnerable communities to satisfy disgruntled Wall Streeters.

John Kerry, you have a chance to do good here. Do not throw it away to please a donor trying to scrub his conscience — or at least, his public image.

“John Kerry” by Center for American Progress Action Fund is licensed under CC BY-ND 2.0 

2020 Election/TransitionClimate and EnvironmentForeign PolicyPrivate Equity

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