Tesla’s removal from the S&P index has sparked controversy over ESG ratings

(Bloomberg) – A benchmark ESG stock index has removed Tesla Inc., sparking controversy over what companies do and don’t do with socially conscious investors.

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Tesla has become a $ 735 billion company behind its groundbreaking electric-vehicle engineering. Its own carbon footprint is a small fraction of its peers, and its market success has pushed the industry away from gas-powered vehicles as a whole.

But other elements of the ESG – social and governance risks – discourage investors. Chief Executive Officer Elon Musk is an unconventional manager, prone to emotional tweets, and the company reveals very little information about its employee or labor status.

The split materialized on Wednesday after Tesla was expelled from the ESG version of the S&P 500 Index. Musk responded that the ESG was “a scam.” This has already added a bad day for the company, whose stock has plunged into broad selling in 6.8% tech shares.

Eric Balchunas, a senior ETF analyst at Bloomberg Intelligence, said: “It all boils down to a lot of inconvenient information about ESG: you can’t have a baby and you can’t have a bath. “You have to accept or reject both.”

Read more: ESG investments are mostly about sustainable corporations

In a report, Bloomberg Intelligence analysts wrote that Tesla’s ESG status is the most controversial for any company, with many ESG-labeled funds still holding stock. In fact, about 1.8% of the world’s largest ESG-centric exchange-traded funds have been invested in Tesla, according to data compiled by Bloomberg.

Funding tracks BlackRock Inc.’s $ 21.9 billion iShares ESG Aware MSCI USA ETF (Ticker ESGU), MSCI USA Extended ESG Focus Index, which still includes Tesla members.

Shaheen Contractor of Balchunas and BI wrote on Wednesday that eight of the 15 largest U.S. funds have a significant position in Tesla, including ESG in their portfolio filters.

“While Tesla may fit an environmental focus or impact theme, the company’s social and administrative issues make its inclusion in the ESG fund controversial and the removal of Tesla from the S&P 500 ESG index may take time,” analysts said in their headline post. “

The S&P Dow Jones Indices, which removed Tesla from its S&P 500 ESG index, said the company’s score remained “fairly stable” last year in environmental, social and governance standards, but it fell below the rankings of global peers.

The indicator cited concerns about the state of operation and the conduct of investigations into deaths and injuries associated with the Tesla driver-assistance system. The lack of a low-carbon strategy and code of business conduct have also been counted against Musk’s company, it said.

“While Tesla could play a role in getting fuel-powered cars off the road, it lags behind its peers when tested with a wide ESG lens,” said Margaret Dorn, senior director and head of the ESG index at S&P Dow Jones in North America, in a blog post on Tuesday. Said in the post.

Read more: Tesla crashes, S&P loses ESG index spot on working conditions

For months now, Tesla has been criticizing the ESG. The agency said in its annual report that ESG ratings were “fundamentally flawed” and in an April tweet, Musk said “corporate ESG is the devil’s incarnation.”

From a market perspective, Tesla’s removal from the S&P index is likely to be minimal, as tracking S&P ESG gauges was only .7 11.7 billion at the end of 2020. In contrast, the trillion-dollar original S&P has tracked 500 gauges.

Investors are divided over S & P’s decision. Christine Hull, founder of Nia Impact Capital, a sustainable fund in Oakland, California, which has been pushing Tesla to solve workers’ problems, said she was relieved that there was “ultimately accountability.”

Zach Stein, chief investment officer at Carbon Collective, a climate-centric online investment adviser based in Berkeley, California, says the opposite. ESG’s biggest problem is climate change, so it makes no sense to exclude the leading manufacturer of electric vehicles, especially since Exxon Mobil Corp. Companies like this remain on the S&P index, he said.

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