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Tesla has been excluded from the widely followed ESG benchmark, and Elon Musk tweets his anger

Investors interested in issues such as diversity and climate change have poured billions of dollars into funds using ESG’s stock selection criteria.

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An S&P Dow Jones Indices executive told Reuters on Wednesday that it has removed electric car maker Tesla Inc from its widely followed S&P 500 ESG index over issues including allegations of racial discrimination and accidents related to autopilot vehicles, and Tesla CEO Elon Musk responded with harsh tweets. Including “ESG is a SCAM”.

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In its changes, effective May 2, the sustainability index also added Twitter Inc, which was soon controlled by Musk and oil refiner Phillips 66, while shedding Delta Air Lines and Chevron Corp, according to an announcement.

The index changes back and forth reflect a broader discussion about the metrics used to judge companies’ performance on environmental, social and governance (ESG) issues, a growing area of ​​investment.

Tesla has become the most valuable automaker by pioneering electric vehicles and expanding battery storage to electric grids and solar energy systems.

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Margaret Dorn, head of ESG North America Indexes at S&P Dow Jones, said in an interview that factors contributing to its exit from the index include Tesla’s lack of published details regarding its low-carbon strategy or business conduct code.

Although Tesla’s products help reduce greenhouse emissions, Dorn said, its other issues and lack of disclosures regarding its industry peers should raise concerns for investors looking to judge the company via ESG standards.

“You can’t just take a company’s mission statement at face value, you have to look at its practices across all of those key dimensions,” she said.

Tesla representatives did not immediately respond to questions. The company previously described ESG’s methodologies as “fundamentally flawed”.

Musk tweeted, “Exxon has been ranked the world’s top ten ESG by the S&P 500, while Tesla didn’t make the list! ESG is a scam. It’s been weaponized by phony social justice warriors” .

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When asked about the tweet, a representative for the index provider said that Musk may have been referring to a list in the company’s blog post of the 10 largest components by market capitalization of the S&P 500 ESG Index after removing Tesla and others. The representative said the list is “not a ranking of the top companies by ESG score”.

Exxon now accounts for 1.443 percent of the index’s weight. Apple Inc was the largest with 9.657 percent

Investors interested in issues such as diversity and climate change have poured billions of dollars into funds using ESG’s criteria for stock selection, fueling debate about how effective the funds are in promoting change or whether they are pushing companies too much on issues that must be resolved through government policy.

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S&P Dow Jones Indexes is majority owned by S&P Global Inc. Musk and others have complained about the company, and its competitors have combined several problems by piecing together ESG’s concerns.

For example, a fund based on the S&P 500 ESG index, the SPDR S&P 500 ESG ETF, received a low rating of “D” by climate activist research group As You Sow, which noted despite its title and sustainability mandate, fossil fuel stocks make up 6.5 percent of the fund’s assets.

In the company’s blog post reviewing the changes from April 22, S&P’s Dorn said the index aims to maintain the weight of industries as in the regular S&P 500 index “while enhancing the index’s overall sustainability profile.” In practical terms, that means it can keep the oil companies out while cutting out big players like Facebook’s major Meta platforms and Wells Fargo & Co.

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Dorn said Tesla’s ESG score is down slightly from the “22” it got last year. At the same time, average scores improved among other automakers, pushing Tesla out of the ESG due to a rule against including companies with lower quartile performance.

Dorn and others did not immediately describe other details such as reasons for adding Twitter, Phillips 66, or dropping other companies.

Among other large ESG rating agencies, MSCI Inc gives Tesla an ESG rating of “average,” while Morningstar Inc’s sustainability analytics unit gives Tesla a rating of “medium risk,” according to the companies’ websites.

On Wednesday, a US safety authority opened a special investigation into the Tesla car crash this month in California, among more than 30 accidents under investigation involving advanced driver assistance systems.

In February, a California agency sued Tesla over allegations from black workers that the company had tolerated racial discrimination at an assembly plant, fueling claims in several other lawsuits. (Reporting by Ross Kerber; Editing by Pete Henderson, Aurora Ellis and David Gregorio)

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2022-05-18 21:54:55

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