Norway fund giant Norges cuts off Adani Ports

Norges Bank Investment Management excluded APSEZ, citing a recommendation from its ethics council on 21 November. This makes APSEZ the 16th Indian company to be excluded by the sovereign fund, which managed assets of $1.63 trillion as of 31 March 2024.

“The Norges Bank Executive Board has decided to exclude the company Adani Ports and Special Economic Zone Ltd due to unacceptable risk that the company contributes to serious violations of individuals' rights in situations of war or conflict, ref. the conduct-based criterion in the Guidelines for Observation and Exclusion from the Government Pension Fund Global," said Norges in a statement. “The company has been under observation since March 2022, but that observation now ends given the exclusion decision."

A fourth of India's total cargo is handled by APSEZ, which owns a total of 14 ports including in Israel, Australia and Sri Lanka.

“APSEZ has been under observation since March 2022 due to its business association with the armed forces in Myanmar in the development of Ahlon International Port Terminal in Yangon," said the Council on Ethics panel which recommends Norges on which companies to be put on the Exclusion list.

"APSEZ had announced that it would pull out of the business in Myanmar. Due to the uncertainty surrounding whether and when it would be possible to accomplish this, the Council recommended that the company be placed under observation," it said.

Norges owned 0.24% of APSEZ at the end of December 2023. Billionaire Gautam Adani, the company's promoter, owned 65.89% of APSEZ, which had a market cap of ₹2,90,484 crore as of 16 May. Norges also owns 0.17% of Adani Green Energy and 0.12% of Adani Total Gas Ltd.

"The Council has reassessed the company following the disclosure that APSEZ had sold its port-related operations in Myanmar to Solar Energy Ltd in May 2023. No information on the buyer is available, and APSEZ has stated that it cannot share any such information on the grounds of confidentiality. 

The Council attaches importance to the fact that the company has failed to help shed light on the matter, that no other information is to be found about the company that is said to have acquired APSEZ’s operations in Myanmar, and that APSEZ’s auditor did not have sufficient information to assess whether the sale to Solar Energy was a transaction between related parties. This lack of information means that the Council cannot establish whether APSEZ has links to the enterprise concerned. In a situation in which extremely serious norm violations are taking place, this constitutes an unacceptable risk that the GPFG’s investments in APSEZ may breach its ethical guidelines," the Council on Ethics panel added.

Investors shrugged off the decision, with APSEZ's shares rising 0.56% higher to close at ₹1344.75 on Thursday.

"Investor activism makes companies change behaviour," said Sharmila Gopinath, a specialist adviser for India at the Asian Corporate Governance Association.

"Now, a lot of thought must have gone before Norges, which is the world's largest sovereign wealth fund, arrived at this decision. Norges, in simple words, is saying, my money can talk and I will not give my money if a company is not doing business that is environmentally sound or abiding by corporate governance. But please understand that sovereign wealth funds do not expect companies to change in the short term, say one or two years. A change will happen in how these companies do business in 5-10 years. And I believe decisions by government-backed Norges also make other pension and large institutional investors consider their ESG metrics before investing."

Norges owns 1.5% of the world’s listed companies, and owns shares in a little over 300 companies in India, according to an analysis by Mint. Its exclusion list currently has 192 companies, of which 16 are from India.

Norwegian law bars the fund from investing in companies that produces tobacco, coal and nuclear weapons. For this reason, ITC Ltd became the first company which was excluded by Norges in 2010. Over the years, seven more public sector firms, including Gujarat Mineral Development Corp Ltd, NTPC and Coal India Ltd were barred by the fund. Bharat Electronics Ltd’s business of manufacturing technology and military-end use goods made Norges conclude that it will not invest in the company.

“Sales of weapons to states in armed conflicts, where the weapons are used in ways that constitute breaches of the international rules on the conduct of hostilities," reasoned Norges when it removed BEL last January. When it excluded Gail India Ltd, another public sector enterprise, in April last year, Norges cited “serious violations of individuals' rights in situations of war or conflict."