Tesla loses spot on S&P ESG index due to concerns over crashes, working conditions
THE world's most famous electric-vehicle maker has lost its spot on the ESG version of the S&P 500 Index.
S&P Dow Jones Indices says that Tesla's score on environmental, social and governance (ESG) standards has remained "fairly stable" over the past year, but that it has slipped down the ranks against improving global peers.
The index provider also cited concerns related to working conditions and the firm's handling of an investigation into deaths and injuries linked to its driver-assistance systems. A lack of low-carbon strategy and codes of business conduct also counted against Elon Musk's company, it said.
"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," Margaret Dorn, senior director and head of ESG indexes for S&P Dow Jones in North America, said in a Tuesday (May 17) blog post.
Tesla didn't immediately respond to an emailed request for comment, though writing on Twitter on Wednesday Musk described ESG as a "scam".
Tesla also recently criticised ESG metrics as "fundamentally flawed" in an annual report, and in an April tweet Musk said, "corporate ESG is the devil incarnate".
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Dorn wrote that an analysis seeking to identify risks to the company stemming from any controversial incidents identified "two separate events centred around claims of racial discrimination and poor working conditions at Tesla's Fremont factory, as well as its handling of the NHTSA investigation after multiple deaths and injuries were linked to its autopilot".
Both had a negative impact on Tesla's score, she said.
The S&P 500 ESG Index is tracked by at least 16 exchange-traded funds, according to the S&P Dow Jones website. There were US$11.7 billion in assets indexed to S&P ESG gauges broadly at the end of 2020, according to an S&P survey.
"This exclusion will lead to some forced selling since funds benchmarked to the ESG index cannot hold the stock now," said Gene Munster, former technology analyst who's now a managing partner at venture-capital firm Loup Ventures. Tesla fell as much as 8 per cent Wednesday, and Munster attributes about one-third of the drop to news of the index exclusion.
Kristin Hull, founder of Nia Impact Capital, a sustainability fund in Oakland, California that has been pressing Tesla to address worker issues, said she was relieved that there was "finally accountability".
"This move signals to other companies that ESG standards, and improving them, matters," she said. "And that there will be material, financial implications."
But the decision didn't sit well with some other clean energy supporters.
"This exclusion undermines the concept of ESG as a whole," said Zach Stein, chief investment officer at Carbon Collective, a climate-change focused online investment adviser based out of Berkeley, California. "The number one issue in ESG is climate change and the company that is the leader in one of the most important solutions to climate change, which is electric vehicles, is now out, while companies like Exxon Mobil, which is one of the biggest contributors to climate change, is still in."
The S&P ESG gauge does include some oil companies. Exxon Mobil is one of the largest companies in the benchmark, and the index recently added Marathon Oil and Baker Hughes.
The objective of the index "is to maintain similar overall industry group weights to the S&P 500 while enhancing the overall sustainability profile", Raymond McConville, a spokesperson for S&P, said through email. S&P has other gauges that exclude oil companies, but "the S&P 500 ESG Index is meant to be broad based".
Berkshire Hathaway, Johnson & Johnson and Meta Platforms are among other large companies that also didn't make the list. BLOOMBERG
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