One of the market’s most popular ESG index providers says it will speed up its review of companies, after it failed to address allegations of poor governance at the Adani Group companies as quickly as its competitors.
MSCI Inc. will now review holdings in some of its ESG indexes on a monthly basis, more frequently than its previous quarterly schedule, the firm said Thursday. Any companies involved in significant ESG controversies, and those that don’t comply with the principles outlined by the United Nations global compact, will be stripped from the indexes.
MSCI added that only certain ESG and climate indexes apply screens for ESG controversies on a monthly basis, according to a statement.
The change follows a delayed response to the Adani controversy that has left the market wondering about the lack of action from ESG’s most influential gatekeeper. After short-seller Hindenburg Research accused the Indian conglomerate of fraud and market manipulation last month, ESG ratings firms and index providers have rushed to reassess Adani companies. S&P Global Inc. said this month it would remove Adani Enterprises from its Dow Jones Sustainability Indexes. Sustainalytics last week downgraded the ESG scores of several Adani companies.
MSCI hasn’t updated its ratings of Adani Green Energy Ltd. or Adani Total Gas Ltd. since the Hindenburg report was released on Jan. 24. Both are rated A, MSCI’s third-highest. The two are included in several of MSCI’s ESG indexes.
“If a company experiences a controversial issue that results in a significant loss of market value, investors need to be able to respond quickly,” said Kelvin Law, an associate professor of accounting at Singapore’s Nanyang Technological University. “ESG ratings need to be responsive in real-time.”