Funding arrangements at conglomerate Adani Group have brought a breath of fresh air through the ESG market as investors wake up to new risks.
Norway’s largest pension fund, KLP, recently dumped all of its holdings in Adani Green Energy Ltd., the renewables part of the empire, over concerns that it may unwittingly help finance some of the world’s most polluting activities through its shares. A public filing on February 10 made it clear that Adani used shares of Green’s company as collateral in a credit facility that helped finance the Carmichael coal mine in Australia, through Adani Enterprises Ltd.
KLP has blacklisted coal from its portfolio, so indirect funding of the Carmichael project would represent “a breach of our commitment,” said Kiran Aziz, KLP’s head of responsible investment, in an interview.
Since short-seller Hindenburg Research published a critical report on January 24, investors have responded to allegations of fraud and market manipulation by selling Adani shares. But for investors with environmental, social and government mandates, there’s growing pain knowing those green dollars aren’t directly supporting the dirtiest fossil fuels.
“Investments in other parts of the Adani Group are leaking into Carmichael funding,” said Ulf Erlandsson, chief executive of the Anthropocene Fixed Income Institute, which has been tracking the Adani Group since mid-2020. potential across the entire Adani Group.”
More than 500 funds registered in the European Union as “promoting” ESG objectives hold Adani shares, directly or indirectly, according to data compiled by Bloomberg.
An Adani spokesperson did not respond to a request for comment. The conglomerate has repeatedly denied the allegations in the Hindenburg report and threatened legal action.
Erlandsson at AFII said equity investors pledging shares as collateral should not harm other shareholders. But the “high concentration of shareholdings and other interrelationships” in the Adani conglomerate represent an extra layer of risk, he said. A higher price in Adani Green shares increases the value of the collateral, reducing the credit risk for the financing of the SBI coal project, which then “hypothetically, materializes in the bank to be able to offer a lower interest rate to Carmichael,” he said.
Adani Green’s share price has fallen nearly 70% this year, while its debt has also fallen. The company on February 7 has won support from investors after reporting third-quarter net income that more than doubled from a year earlier. Adani Green CEO Vneet S. Jaain said the results prove that the company has “a robust capital management program with an impact that matches its business model.”
As of February 16, the conglomerate is in talks with potential investors to raise up to $1.5 billion through the sale of notes by Adani Green, Adani Transmission Ltd. and Adani Ports & Special Economic Zone Ltd., according to people familiar with the proceedings.
The Hindenburg Report found that “Adani Group companies have complex and obvious relationships and dependencies on each other. No listed entity is isolated from the performance, or failure, of other group companies.
The Carmichael coal mine, located inland from Australia’s Great Barrier Reef in Queensland, has become a lightning rod for climate activists over the environmental damage the facility represents. Pushback is also coming from banks, insurers and investors, amid alarm over the mine’s carbon footprint.
MSCI Inc. gave Adani Green an A rating, and the entity is included in several ESG and Climate indices. S&P Global Inc. said this month it will remove Adani Enterprises from the Dow Jones Sustainability Indexes. Sustainalytics has lowered the ESG scores of several Adani companies. MSCI said it would start reviewing its holdings in ESG indices more frequently, in response to questions about its approach.
Norway’s KLP, which manages about 765 billion Norwegian kroner ($75 billion), shed its position in Adani Green on January 30, adding five more Adani companies that were previously excluded from the investment world.
“Adani’s corporate structure creates an unacceptably high risk that ‘clean’ investment could be siphoned off into coal mining,” Aziz said.
The largest external holder of Adani Green is TotalEnergies SE, which will acquire a 20% stake in 2021. The French energy giant confirmed its withdrawal from the production and marketing of coal in 2015. CEO Patrick Pouyanne said earlier this month that Adani Green and Adani Total Gas Ltd., which well invested, “healthy” companies.
“The shares that TotalEnergies owns in AGEL are not pledged or used as collateral for financing or other projects,” a company spokesperson said. “TotalEnergies is not involved in using shares held by other AGEL shareholders for collateral or other purposes.”
–With help from Gina Turner, PR Sanjai and Saikat Das.
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