Investing usually uses a combination of head, heart and gut even if it’s not supposed to. And perhaps no market theme stirs “all the feels” quite like ESG.
This week, a major move to cut Tesla from a closely followed environmental, social and governance (ESG) index brought anger and relief in nearly equal measure.
Defiance was on display from Standard & Poor’s, which rejected Tesla from its ESG index; annoyance emerged from Tesla
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investors, including well-known asset manager and Tesla bull Cathie Wood. There was also a seething snapback from Elon Musk.
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Mostly, a fresh wave of confusion emerged about what constitutes “ESG” if what many see as the anti-gasoline renegade no longer gets its due.
The S&P 500 ESG Index dropped Musk’s Tesla from the lineup as part of its annual rebalancing. But, in large part because it’s also supposed to track the broader S&P 500
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although while adding an ESG layer, the index kept oil giant ExxonMobil
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in its top ESG mix. Also included: JPMorgan Chase & Co.
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which has been dinged by environmental groups as chief lender to the oil patch.
“ESG is a scam. It has been weaponized by phony social justice warriors,” tweeted Musk, lamenting that ExxonMobil topped Tesla.
“Ridiculous,” was Wood’s terse response to Tesla’s removal.
“While Tesla may be playing its part in taking fuel-powered cars off the road, it has fallen behind its peers when examined through a wider ESG lens,” argued Margaret Dorn, senior director and head of ESG indices, North America, at S&P Dow Jones Indices, in a blog post.
Specifically, it was the ”S” and ”G” that soured Tesla’s ”E”, S&P’s report shows. Tesla was marked down for claims of racial discrimination and poor working conditions at its Fremont, Calif., factory. The carmaker was also called out for its handling of the NHTSA investigation after multiple deaths and injuries were linked to its autopilot vehicles.
ESG-minded investment house Just Capital has a similar critique to that of S&P. Tesla has historically scored in the bottom 10% of Just Capital’s annual sustainability rankings primarily due to how it pays and treats its workers, the investment company said. Broadly speaking, Tesla performs well on environmental issues, customer treatment and creating U.S jobs, but not so well on certain “S” and “G” criteria, including “paying a fair and living wage” nor “protecting worker health and safety” nor with diversity, equity and inclusion (DEI)-related discrimination controversies.
Paul Watchman,…
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