MSCI, ESG's Most Influential Gatekeeper, Readies Judgment On Adani Group Companies

MSCI Inc. will release the results of a quarterly review for its ESG and climate indexes this week, the first since a short-seller attack on the Adani Group triggered a $100 billion selloff

MSCI gives Adani Green Energy Ltd. a rating of A, its third-highest, and the entity is included in several of its ESG and Climate indexes.

In a bid to defend reputation against recent allegations of fraud, Adani Group companies have pointed to their commitments to ESG principles and global frameworks, reported by news agency Bloomberg. One of ESG’s most influential gatekeepers will soon render its own judgment.

According to the report, MSCI Inc. will release the results of a quarterly review for its ESG and climate indexes this week, the first since a short-seller attack on the Gautam Adani-led Adani Group triggered a $100 billion selloff. If it reflects a significant downgrade in the ESG ratings of any of the Adani companies, they could be removed from ESG indexes and trigger a fresh round of selling.

US-based Hindenburg accused Adani Group of accounting fraud and stock manipulation in its report, allegations the conglomerate denies.

MSCI gives Adani Green Energy Ltd. a rating of A, its third-highest, and the entity is included in several of its ESG and Climate indexes. So is Adani Total Gas Ltd., also rated A. Those ratings haven’t changed since Hindenburg Research published its report on the Indian conglomerate Jan. 24, MSCI said in an email, noting that its indexes and ratings divisions operate independently. The index provider declined to comment on any future changes.

Passive ESG funds held more than 9.7 million shares in Adani Green worth $81 million as of Monday, according to Bloomberg-compiled data. The second-most popular Adani holding for ESG index funds is Adani Total Gas, with almost 1.2 million shares worth $17 million.

Index-linked ESG funds could hold about 3.6 per cent of the free float for Adani Green and 0.7 per cent for Adani Total Gas, according to Brian Freitas, an analyst at Smartkarma.

There’s more risk in Adani Green, said Freitas, given its high valuation and higher ownership by passive ESG funds. Taking everything into account, Adani Green’s share price could fall by 25 per cent to 30 per cent by the end of the month, compared with 15 per cent to 25 per cent for Adani Total Gas, he said.

So far, only a handful of passive ESG funds have sold shares of Adani Green or Adani Total Gas since Hindenburg Research published its report, and the sales represented a small portion of the total positions.

S&P Global Inc. said this month it was removing Adani Enterprises from its Dow Jones Sustainability Indexes.