India’s ports-to-coal conglomerate Adani Group has been in the news for all the wrong reasons over the past several months, as the country’s nascent environmental, social and governance (ESG) regulatory landscape fails to keep pace with the rapidly evolving nature of sustainability violations and carbon credit fraud.
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Following explosive allegations by the American short-seller Hindenburg Research in January last year, the energy giant’s market prices went into a tailspin, losing over US$100 billion in market capitalisation.
As the conglomerate’s stock price began to recover steadily, in May it was hit with fresh accusations of channelling money meant for its renewable energy arm into various coal businesses.
The charges levelled against Adani Green, the renewable energy business entity under the Adani empire, underscore the limitations of a near-regulatory vacuum in India on ESG in which both domestic and global companies operate.
“Adani Green has been dressed up as a credible standalone subsidiary and a listed company so that foreign investors can pretend they’re not investing in the biggest private coal mining/power/coal trading/LNG importer/coal handling company in India,” said Tim Buckley, director of a Sydney-based think tank Climate Energy Finance that has been closely studying the Adani business for nearly two decades.
According to a report released by the global activist initiative Toxic Bonds Network, the Adani Group has had questionable inter-business transactions involving its renewable energy arm, Adani Green, with its coal entities. These transactions were allegedly made after Adani Green raised money from global investors under the guise of green bonds.
In other words, it is alleged that the Adani Group attracted investment for its green arm but diverted some of those funds towards its coal businesses, including its controversial Carmichael coal mining project in Australia.
“Adani Green is just a subsidiary of a conglomerate that is grey, black, and green. It’s agnostic and it does what India needs and where it can make money,” Buckley said.
Adani had not responded to requests for comment at the time of publishing.
‘Powerful’ Adani
Snowcap Research, an activist investment research firm, said in a recent analysis that the Adani Group has set ambitious renewable energy targets but raised serious questions about the conglomerate’s financing model of raising money from global investors by setting unachievable green goals.
In May last year, the United Nations-backed Science Based Targets initiative (SBTi) – considered the gold standard for ESG corporate governance – removed three major businesses of the Adani Group from the list of “companies taking action” against climate change.
Gautam Adani, India’s second richest person, helms the sprawling conglomerate with various other family members such as his brother and son occupying key board positions. He has been known to be close to Indian Prime Minister Narendra Modi.
Modi’s political opponents often taunt the close association between the two, both hailing from the state of Gujarat, and frequently make accusations of “crony capitalism”.
Adani Green is India’s largest renewable energy company with an installed capacity of nearly 11GW of power, according to the company’s annual reports.
Various other arms of the conglomerate, such as Adani Enterprises, Adani Ports, Adani Power, and Adani Energy Solutions, operate a mix of power-generating facilities producing energy from both coal and renewable sources like wind and solar.
In December last year, the group promised to invest a massive US$100 billion towards ESG goals over the next decade and pledged to achieve net zero by 2050.
“It is important to note that the Adani Group as a whole has coal expansion plans of more than 20,000 MW, which cements its position as first and foremost a coal company,” said Dr Sebastian Mauritz, a researcher for the Global Coal Exit List at environmental non-profit agency Urgewald.
“The Adani conglomerate has a web of more than 500 subsidiaries, and cross-financing among them is highly likely. If a company is actively developing coal assets, the risk of cross-financing is simply too great to ignore,” added Mauritz.
For instance, the Adani Group has reportedly set up over 200 companies – many in tax havens – to operate a single facility, the Carmichael coal mine, in Australia’s Queensland.
“Investors should always keep the risk of cross-financing in mind when investing in green bonds by conglomerates such as Adani. One way for regulators to prevent greenwashing and misleading investors is to disaggregate ESG scoring so that investors can evaluate a company’s environmental, social, and governance scores separately and make more informed decisions along those parameters,” said Mauritz.
The Adani Group has repeatedly dismissed all the allegations raised by various agencies.
An Indian economist, who did not wish to be identified, pointed out that no regulatory body can touch any entity of the Adani Group for either perceived or actual violations.
The group is so powerful that “there’s not a single piece of coal imported into India which will not be untouched by an Adani entity at least once in the supply chain”.
Regulatory loophole or vacuum?
Other experts point out that the ESG regulation ecosystem is nearly absent in India, allowing both large corporations and smaller businesses to operate freely in a legal void with impunity.
“In ESG, we’ve only scratched the surface formally and regulatorily. Most regulations are not yet formalised; they have been left open,” said Dr Srinath Sridharan, policy researcher and corporate advisor.
“If Adani or any other conglomerate is borrowing money or raising bonds in the international market, as long as they’re delivering those covenants, they’re fine,” said Sridharan, who has co-authored the book Reimagining ESG, which is slated to be published in the coming weeks.
“I kind of support the Indian conglomerates for the simple fact that there’s no definition. We’ll know the meaning of the word only if there’s a dictionary. Otherwise, it is subject to what you use colloquially,” said Sridharan.
He added: “That’s why India needs to urgently formulate its green taxonomy, which would be standardised and used by all of its regulatory systems.”
Shikha Kher, a senior analyst for India and South Asia at the global strategic consulting firm Control Risks, supports the proposition that Indian policymakers should soon draft robust ESG regulations to improve existing business practices.
“India has not had a standard framework for ESG reporting, including for corporate governance. Instead, multiple laws and regulations seek to address ESG issues, creating a web of direct and indirect compliance requirements,” said Kher.
“In so far as regulatory compliance is concerned, it is not so much about exploiting existing loopholes (which cannot be ruled out) as it is about the nascency of technical skill, expertise, and thought that is needed to comply effectively with the disclosure requirements. This helps foster comprehensive thinking on ESG issues across a business, rather than perpetuating an attitude of reporting for compliance’s sake and risking greenwashing while doing so,” she said.
