Should SBI Green Bond Investors be Suspicious?

    Stockholm (NordSIP) – The State Bank of India is reported to be preparing to loan INR50 billion (US$670 million) to Adani for investment in the Carmichael mine in Queensland, Australia. The mining project is a danger to Australia’s environment due to the spillage dangers during coal transportation as well as to the heritage and rights of aborigines communities. Given that the coal is due to be exported to India, it is also a danger to the subcontinent, one of the world’s most exposed regions to the dangers of climate change.

    According to Swedish fixed income and sustainability specialist Ulf Erlandsson, the transaction would make a mockery of the 4.5% USD650 million 2023 green bond issued by SBI in September 2018, should it go ahead. “We opine that an execution of funding to Carmichael effectively removes all green credentials, aka greenwash, on the back of the issuer not exhibiting an actual dedication to climate change mitigation.” According to the press release, that bond “received an overwhelming response and saw strong interest from investors across geographies with a final order book in excess of USD 1.25 billion across 114 accounts.”

    On the occasion, Shri Rajnish Kumar, Chairman, SBI noted that the SBI “has embarked on its sustainability journey with an objective to create a positive impact on the environment. Green Banking and Sustainability have long been areas of priority and in an early delineation of this approach, SBI had enunciated its Green Banking Policy a decade back. Issuance of Green bond is one of the step in that direction. It gives us immense pleasure to see the response received from Global Fund managers to our issuance.”

    According to SBI’s Green Bond Framework, green bond proceeds will be allocated to projects in renewable energy, low carbon buildings, industry and energy-intensive commercial, waste & pollution control, and sustainable transportation projects. Clearly, the Carmichael project is not aligned with the bond framework.

    As the original report notes, SBI would be alone in supporting this transaction, after Citibank, Deutsche Bank, Royal Bank of Scotland, HSBC and Barclays declined the opportunity due to a decline in coal mining in Australia. Following the bush fires at the start of 2020, environmental considerations have become more prominent in Australia, leading to increasing pressure to limit coal extraction projects in the country.

    At the start of 2020, Siemens CEO, Joe Kaeser, issued a despondent statement arguing that despite himself.  “There is practically no legally and economically responsible way to unwind the contract without neglecting fiduciary duties,” Kaeser explains. “I do realize, most of you would have hoped for more. While I do have a lot of empathy for environmental matters, I do need to balance different interests of different stakeholders, as long as they have lawful legitimation for what they do.” He also added that “had it been my own company, I may have acted differently.”

    In September, Rio Tinto announced that CEO, Jean-Sébastien Dominique Francois Jacques, would step down following the destruction of the Juukan Gorge Cave site in the Pilbara region of Western Australia in May.

    The Adani group is an Indian multinational conglomerate headquartered in Ahmedabad, Gujarat.

    Image by Анатолий Стафичук from Pixabay

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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