Adani Enterprises and passive ESG index investors

2 minute read

The recent exclusion of Adani Enterprises (ADE IN) from several equity ESG indices raises the questions: why was the name there in the first place, and how much money have investors lost due to that inclusion?

From a broader market perspective, one of the more discomforting headlines during last weeks’ Adani saga was “S&P Dow Jones Indices will remove Adani Enterprises from its sustainability indices”.

The stock is down around 49% year-to-date, translating to a loss of between 5-10bps at a fund level for some large ESG funds. The ESG controversies around the name, in particular greenfield thermal coal mining are not new.

For example, Adani Enterprises is the 100% owner of the Australian Carmichael thermal coal project. Why was Adani Enterprises (ADE IN), with documented governance, environmental and social issues, included in “sustainability” or “ESG” equity indices in the first place? This is not to single out S&P DJI: MSCI and FTSE have had ADE IN in some of its EM-focused ESG indices as well, according to Bloomberg data.

This brief note shows a sample of funds/ETFs carrying ESG/sustainability descriptions and with around USD10bn AUM, illustrating the expected drag on returns due to inclusion of ADE IN as per recent market levels. The loss in terms of ESG impact and credibility is harder to calculate. We suggest that exposed investors engage.