1 July 2021
Global investors rely on their ability to manage and avoid risk, and increasingly that risk is being framed in terms of investment exposure to environment, social and governance (ESG) issues. Alongside an increasing appetite to invest in companies, projects and indices with high ESG values, is the competition between agencies selling “risk assessment” products.
One of those agencies is Sustainalytics, which markets products that identify, understand, and manage ESG-driven risks and opportunities, in particular assessing a company’s exposure to and management of ESG issues.
Bizarrely, Adani Ports and Special Economic Zone (Adani Ports), the company maintaining business ties with Myanmar’s military, a major player in the disastrous Carmichael thermal coal project and responsible for serious ecological and community impacts in India, is afforded a “low risk” rating from Sustainalytics. Its assessment says that while Adani Ports has been involved in what Sustainalytics calls a “severe” Land use and biodiversity operational incident in the last three years, Adani Ports’ exposure to ESG risk is “low” and its management of ESG Material Risk is “strong”.
The same company that was kicked off the Dow Jones Sustainability Index in April and has been dumped by major investors and bankers including PIMCO and Deutsche Bank due to climate and environmental concerns, is considered “low risk” by Sustainalytics.
Use this form to contact Sustainalytics calling for an immediate reassessment of Adani Ports’ rating considering its serious climate, ecological and human rights impacts.
Sustainalytics defines a material ESG risk as something that is likely to influence the decisions made by a reasonable investor. In April at least eleven investors either set exclusions against Adani Ports or divested their previous holdings due to ESG concerns. In June, another three, KLP, Storebrand and Samsung announced divestment from Adani Ports, citing coal and Myanmar. If this isn’t a clear indicator that Adani Ports’ actions pose a material ESG risk, we don’t know what does.
Sustainalytics’ ESG Risk Ratings are influenced by a company’s involvement in controversial events that have an impact on the environment and society – Adani Ports’ actions provide numerous examples that Sustainalytics should have considered and have been made aware of. A non-exhaustive summary of Adani Ports’ controversial behaviour includes:
- Maintaining business ties with a sanctioned Myanmar military owned company, even after the 1 February anti-democratic coup and subsequent murder of hundreds of peaceful protesters, in breach of the UN Global Compacts’ Principles, of which Adani Ports’ is a signatory;
- Adani Ports set up the company that will transport coal for Adani’s massive greenfield thermal coal mine in Australia, undermining global efforts to curb emissions in line with the internationally accepted Paris Climate Agreement goals. It is also involved in several more of Adani Group’s many fossil fuel expansionary projects;
- Adani Ports has been responsible for severe environmental damage at a number of its ports in India, destroying ecosystems and causing serious economic impacts on local communities;
- Adani Ports is providing the land, power and water for a US$4 billion, 2 MTPA coal-to-polyvinyl chloride (PVC) plant which would presumably utilise Carmichael coal. Coal-to-plastics plants produce around eleven tonnes of carbon dioxide emissions for every tonne of product produced. This is more than triple the emissions from oil-to-plastics production.
Sustainalytics’ assessment uses Event Indicators, rating controversial ESG events from Category 1 (low impact on environment and society, posing negligible risks to the company) to Category 5 (severe impact on the environment and society, posing serious risks to the company). Each of the controversial events listed above received widespread media coverage and had or are having extremely serious environmental and social impacts.
Sustainalytics’ final ESG Risk Ratings score is a measure of unmanaged risk, which is defined as material ESG risk that has not been managed by a company. The agency estimates a company’s management gap, representing risks that could potentially be managed by a company but aren’t sufficiently managed. Adani Ports’ repeated environmental damage in India, combined with its willingness to maintain ties with companies committing serious human rights abuses and playing a key role in constructing a massive thermal coal project in the midst of the climate crisis, forms a significant management gap and demonstrates its unwillingness to manage serious ESG risks.
To have a company with a track record like Adani Ports rated as “low risk” indicates a need for Sustainalytics to carefully examine either its methodology, its application of said methodology or both. Investors need to be aware of the many controversies Adani Ports is mired in in order to make an informed decision as to whether to invest in the company.
Contact Sustainalytics now, asking that it urgently reviews Adani Ports’ “low risk” ESG rating.