The transatlantic battle of green tax credits reached a turning point this week when a leaked document revealed the EU was planning to hit back hard against the US’s $369bn Inflation Reduction Act.
Under a draft plan seen by the Financial Times, the European Commission outlined it intention to relax state-aid rules to try to stop nascent green industries from decamping to the US. This marks an important shift from the long-held EU view that protectionism was taboo.
In other big news, the Adani Group pulled off a $2.4bn equity sale despite an explosive New York-based short-seller’s report alleging fraud at the Indian conglomerate. Abu Dhabi’s International Holding Company and London-listed Jupiter Asset Management are among those that bought the shares.
Things are more complicated for investors with a sustainability mandate, I report below. Adani Green Energy, which previously helped protect investors from exposure to controversial parts of the business, could end up suffering most from allegations of blurred lines at the group as a whole.
Also today, two years on from a military coup in Myanmar, there has been no exodus of European companies from the south-east Asian nation, Tamami writes. (Kenza Bryan)
With rising scrutiny from consumers and investors, and new regulations coming down the tracks, ethical issues in supply chains are attracting growing attention. What are the most pressing challenges here – and how can companies and investors navigate them? Our next FT Moral Money Forum report will explore these questions. We want to hear your views. Please share your thoughts through this short survey.
Cross-contamination jitters for Adani Green Energy
Norway’s largest pension company KLP has dumped its shares in Adani’s clean energy arm, it has told Moral Money, following allegations of fraud and stock-price manipulation at the group as a whole.
The Oslo-based fund with NKr765bn ($77bn) under management sold all its shares in Adani Green Energy last week because of fears it could inadvertently be funding the group’s coal mine investments.
While the position was tiny — about $3mn worth of shares — the logic behind the decision is worth examining.
The report by Hindenburg Research wiped nearly $70bn off the valuation of Adani’s network of listed companies after it dubbed the business “the largest con in corporate history” last week.
One of the most damaging allegations in the report for sustainable investors is that intra-company loans tie Adani Green Energy to its sister companies more closely than previously thought.
Adani Green Energy, one of India’s biggest renewable power companies, positions itself as a leader in solar and wind electricity generation. But other parts of the group have interests in coal-fired power plants, while Adani Enterprises owns the controversial Carmichael mine in Australia, which outlined plans last year to produce 10mn tonnes of coal in 2023.
Joakim Askenstedt Embu, portfolio manager for ESG and index funds at KLP, told Moral Money that revelations about Adani’s corporate structure created an unacceptably high risk that “clean” investment could be siphoned off towards coal mining, in breach of the fund’s commitments.
“In principle we think it’s a good trend that companies crystallise their green activity [in one subsidiary] . . . but in this case we think the risk of accidentally financing some other activities we are not supporting is too high,” said KLP’s Embu, citing coal as the standout risk.
Environmental groups have long argued that investing in any Adani company frees up capital within the group for coal, and that investors with exclusion policies for new thermal coal production shouldn’t touch it at all.
Adani’s North Queensland Export Terminal, which will allow coal from the Carmichael mine to be shipped abroad, planned to refinance its $500mn bond issuance expiring in December by drawing on a “subordinated shareholder” loan, according to a note by credit-rating agency Moody’s last March.
The Hindenburg report further blurs the line between these corporate arms, by pointing out for example that Adani Enterprises disclosed a payment of about $100mn to the terminal in its 2022 annual accounts.
The pension fund’s move will raise questions for other investors who, like KLP, track MSCI’s Emerging Markets Index (which Adani Green Energy is a part of) while also holding the EU’s top green classification, requiring the fund “do no significant harm”.
KLP had already removed five other Adani companies in the MSCI index from its emerging markets fund following previous controversies, but had kept Adani Green.
It may not be alone in performing a volte-face. The price of the group’s clean energy subsidiary Adani Green Energy had yesterday fallen about 40 per cent since the report came out, compared with a roughly 13 per cent fall for the stock of its flagship company Adani Enterprises.
The idea of cross-contamination is arguably even more explosive in the green bond market, where issuances come with a promise to investors that their capital will be cleanly ringfenced for particular projects, in some cases justifying a lower cost of capital.
The Toxic Bonds Initiative, a campaign run by a network of NGOs, wrote to Adani bond investors including BlackRock and Credit Suisse earlier this week asking them to “deny new debt, reject new investments and publicly divest from the Adani group” while it continued to expand its coal programme.
It said the company had issued $1.25bn of green bonds in the past three years, and planned to issue more this year.
The Adani Group did not respond to a request for comment. It has refuted the allegations in the short-seller’s report, describing it as “a malicious combination of selective misinformation and stale, baseless and discredited allegations”. (Kenza Bryan)
Two years on, how are western companies handling human rights abuses in Myanmar?
Today marks two years since a military coup toppled Aung San Suu Kyi’s democratically elected government in Myanmar. During this period, nearly 3,000 people have died and more than a million people have been displaced. More than 13,000 people remain in detention, as the military government has intensified its crackdown on widespread resistance against its brutal human rights violations.
Japanese beer and beverage giant Kirin’s recent announcement that it has completed the messy process of withdrawing from the country got me wondering how other international companies have reacted to the situation in Myanmar.
Despite some high-profile exits including Kirin, France’s TotalEnergies and Norway’s telecoms company Telenor, there was no big exodus of western companies from Myanmar. To my surprise, the European Chamber of Commerce (EuroCham) in Myanmar said its membership has grown over the past two years. The current membership stands at 122 European companies, according to EuroCham.
The membership boost comes as “more European companies, who still maintain a presence in Myanmar, seek guidance on navigating the uncertainty of the situation”, Karina Ufert, chief executive at EuroCham Myanmar, told Moral Money. She argued that “European companies play an important role in creating decent jobs and ensuring access to vital goods and services” for people in Myanmar. These companies are also providing additional benefits to their workers, such as meals, transportation and free healthcare, she added.
Compared with the heavy pressure on foreign companies to leave Russia following its invasion of Ukraine, calls to withdraw from the south-east Asian nation have been quieter.
“Most of civil society in Myanmar is not calling for blanket sanctions or all companies to pull out,” Mark Farmaner, director of the Burma Campaign UK, told me. Instead, they ask international companies to cut ties only with the military. The distinction allows international companies to maintain businesses for the people in Myanmar, while avoiding funding human rights violations. For example, the UK-based pressure group’s “Dirty list” includes more than 160 companies with alleged links to the military.
But running a business ethically in a country where the military controls most infrastructure including ports and roads is not an easy task. Montse Ferrer, business and human rights researcher at Amnesty International, demands companies conduct thorough due diligence in the country. If a company cannot verify what documents say, how should it react? Her answer: “Just don’t sell”. (Tamami Shimizuishi, Nikkei)
Smart read
There was a worrying uptick in climate denialism fuelled by bots on Twitter last year, according to a report on misinformation trends led by the Institute for Strategic Dialogue. It also tracks the prevalence of “anti-woke” conspiracy theories online more widely, and the rise in “nature rinsing” adverts from fossil fuel companies on Facebook.
