New York February 27 2023: The asset management unit of JPMorgan Chase & Co. has wiped its ESG portfolios clean of their exposure to the Adani empire.
The move, captured by an analysis of data compiled by Bloomberg, comes as a number of major investment firms such as BlackRock Inc. and the fund management unit of Deutsche Bank AG, DWS Group, continue to sit on Adani stakes in ESG funds that track indexes offered by MSCI Inc.
Spokespeople for JPMorgan and BlackRock declined to comment. A spokesperson for DWS said that when it comes to its MSCI-tracking ETFs, “no proprietary DWS ESG assessment is used,” in an emailed response to questions. MSCI said by email that the results of a regular review of its ESG and climate indexes “will be implemented” at the end of this month. The firm hasn’t adjusted any Adani ESG ratings.
For many fund managers whose investment decisions aren’t anchored by MSCI indexes, Adani became too toxic to hold after a Jan. 24 report by short-seller Hindenburg Research, which alleged the conglomerate was guilty of fraud and market manipulation. The Adani Group has rejected the claims and hired lawyers and communications specialists in an effort to resurrect its image.
For now, the 10 companies that make up the Adani conglomerate are continuing to bleed money, having lost roughly $150 billion in combined market capital since the Hindenburg findings were released, according to data compiled by Bloomberg.
Tim Buckley, director at Australian think tank Climate Energy Finance, described the investor losses as an “absolute failure” on the part of regulators and index providers.
Regulators need to stay on top of “the biggest systemic risks, and to me, one of the big systemic risks is the index funds and the lack of clarity and regulatory definition.”
The Details….
The JPMorgan Global Emerging Markets Research Enhanced Index Equity ESG UCITS ETF (ticker: JREM LN) offloaded the more than 70,000 shares in cement manufacturer ACC Ltd., exiting a stake it’s held since May 2021, according to a data review by Bloomberg that looked at movements following the Jan. 24 publication of the Hindenburg report.
A second fund, the JPMorgan AC Asia Pacific ex Japan Research Enhanced Index Equity ESG UCITS ETF (ticker: JREA LN), sold the roughly 1,350 shares it had held in the company since July last year, the data show. The moves mean JPMorgan, which had held 0.04% in ACC, now has no further exposure to any parts of the Adani conglomerate via ESG funds, according to Bloomberg data.
Both funds are registered as Article 8, which under EU rules means they’re required to “promote” ESG goals. JPMorgan continues to hold Adani stocks in non-ESG funds.
About 500 ESG funds in Europe hold Adani stocks, according to the latest available data compiled by Bloomberg. Most of the holdings are contained in funds registered as Article 8, meaning they’re required to “promote” environmental, social and governance goals under European Union rules. A handful of so-called Article 9 funds, which are required to target 100% sustainable investments, also hold Adani stocks.
Funds with at least $10 billion in assets under management tracking MSCI ESG indexes held shares in Adani Enterprises Ltd. alone when the Hindenburg report was published, according to an analysis by the Anthropocene Fixed Income Institute, which has been studying the Adani Group since mid-2020.
Though MSCI still holds Adani stocks in its ESG indexes, asset managers such as BlackRock are reducing their exposure to the conglomerate through other indexes. S&P Global Inc. said this month it was removing Adani Enterprises from its Dow Jones Sustainability Indexes. Sustainalytics has downgraded the ESG scores of several Adani companies.
MSCI has made no changes to the ESG ratings of Adani companies since the Hindenburg report. Adani Total Gas Ltd. and Adani Green Energy Ltd. both hold an A rating. Three entities — Adani Enterprises Ltd., Adani Power Ltd. and Adani Ports & Special Economic Zone Ltd. — hold MSCI’s lowest ESG rating, CCC.
“Many of the Adani companies already performed poorly on corporate governance,” a spokesperson for MSCI said. MSCI has previously assessed a range of ESG controversies tied to Adani, including “community opposition to specific projects and questionable business ties,” the person said.
Aside from allegations of fraud and market manipulation, ESG fund managers have also had to digest documentation indicating their green dollars were indirectly financing coal, the dirtiest fossil fuel.
Norway’s largest pension fund, KLP, dumped its entire holding of shares in Adani Green Energy Ltd. after the Hindenburg report was published. A Feb. 10 public filing has since made clear that Adani is using stock from companies marketed as “green” as collateral in a credit facility that’s helping to finance the Carmichael coal mine in Australia, via Adani Enterprises Ltd.
Most Adani Shares Have Yet to Stabilize
“Concerns around the use of shares to support loans for sister companies within the Adani Group could hinder funding access and weaken technical support for their dollar bond,” Sharon Chen, a credit analyst at Bloomberg Intelligence, said in a note. “Adani Group’s complex debt structure and weak transparency, evidenced by the use of Adani Green Energy shares to support its coal unit, could further increase ESG concerns and hinder funding access.”
