ESG's most influential gatekeeper MSCI readies verdict on Adani Group firms

As part of its defense against recent allegations of fraud, Adani Group companies have pointed to their commitments to ESG principles and global frameworks. 
 

One of ESG’s most influential gatekeepers will soon render its own judgment. 

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. 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.

As of now, 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% of the free float for Adani Green and 0.7% 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% to 30% by the end of the month, compared with 15% to 25% 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. Sustainalytics last week downgraded the ESG scores of several Adani companies.

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