By identifying the malpractice of a group of businesses, this report highlights the concept of perverse incentives. It looks bad, and it seems fair to say that it is bad:

PRIVATE EQUITY PROFITS FROM DISASTER at the Expense of Workers, Communities, and Climate

Executive Summary

As climate change accelerates and impacts more communities around the world, the need for skilled labor in the disaster restoration industry grows. Increasingly, private equity firms seeking high returns for themselves have come to dominate the disaster recovery sector, reducing workplace standards, overcharging communities and exploiting disasters to extract fees and profits without regard to the workers and communities harmed by their practices.

These high-risk disaster restoration companies entice workers to leave their homes for weeks and months at a time to rebuild communities, often spending long days and nights cleaning up disasters, forced to live together in poor housing. Many of these employers refuse to pay living wages and offer few to no benefits. They often send workers into dangerous, toxic messes with insufficient training, inadequate protective gear and poor staffing levels and then refuse to pay workers what was promised. The companies set up elaborate schemes – franchises, subcontractors, temporary positions and other structures – that make it hard for workers to hold the employers accountable for wage theft, health and safety issues, and related problems. The purpose of this report is to document how private equity companies contribute to climate disasters, profiting from disaster cleanup while harming workers, taxpayers and communities. To be sure, not every company engages in these practices. Some employers are committed to restoring communities, treating workers fairly and being responsible. However, there are far too many examples of exploitation and irresponsible corporate practices to remain silent.

Historically, the disaster restoration industry has been made up of smaller, independent businesses handling local projects. After the massive efforts required post-Hurricane Katrina and the increasing frequency and magnitude of climate disasters, private equity firms saw an opportunity to consolidate the market by buying up smaller companies. In a 2017 piece on now private equity-owned disaster restoration company Belfor, Forbes explained why bigger companies benefit from this model: “[Belfor’s] competition is fragmented: mostly local cleanup crews in any given market, who lack Belfor’s experience and scale. Hence, when insurance companies or multinationals like Wal-Mart or General Electric have a big mess on their hands, Belfor tends to get the first call.”1 In 2018, the last year of publicly released financial data from Belfor before it was acquired by private equity firm American Securities, the company reported $1.95 billion in revenue.2

There are no conclusive numbers on how much the disaster restoration industry is worth; several companies claim the industry is valued at $210 billion, but have no sources backing that number…

Read the whole report here.