Tesla cut from the S&P 500 ESG index, and Elon Musk tweets his fury

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

In that change, effective May 2, the sustainability index also added Twitter Inc and oil refiner Phillips 66, soon to be controlled by Musk, while removing Delta Air Lines and Chevron Corp, according to an announcement.

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

Tesla has become the most valuable company in the automotive industry by pioneering electric vehicles and expanding into battery storage for power grids and solar energy systems.

Factors that contributed to his departure from the index included Tesla’s lack of published details about its low-carbon strategy or codes of business conduct, said Margaret Dorn, head of ESG indices at S&P Dow Jones Indices for North America, in an interview.

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Even if Tesla’s products help reduce global-warming emissions, Dorn said, its other issues and lack of disclosure compared to industry peers should raise concern for investors looking to judge the company. based on environmental, social and governance (ESG) criteria.

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

Tesla representatives did not immediately respond to questions. The company has previously called ESG methodologies “fundamentally flawed”.

Musk tweeted https://twitter.com/elonmusk/status/1526958110023245829 that “Exxon is ranked among the top ten in the world for Environmental, Social and Governance (ESG) by the S&P 500, while Tesla is not didn’t make the list! ESG is a scam. It’s been weaponized by fake social justice warriors.”

Asked about the tweet, a representative for the index provider said Musk may have been referring to a listing on a company blog post https://www.indexologyblog.com/2022/05/17/the -rebalancing-act-of-the-sp-500-esg-index of the 10 largest constituents by market capitalization of the S&P 500 ESG Index after the withdrawal of Tesla and others. The list is “not a ranking of the best companies by ESG score,” the representative said.

Exxon now represents 1.443% of the weight of the index. Apple Inc was the largest with 9.657%.

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GROWING CONCERNS

Investors concerned about issues such as diversity and climate change have invested billions of dollars in funds using ESG criteria to select stocks, sparking debate about how effectively funds promote change or they push business too hard on issues that should be settled by government policy.

S&P Dow Jones Indices is majority-owned by S&P Global Inc. Musk and others have complained that the company and its rivals confuse too many issues by aggregating ESG concerns into one total score.

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

In the company’s blog post reviewing the April 22 changes, S&P’s Dorn said the index aims to keep industries weighted the same as in the normal S&P 500 “while improving the profile overall sustainability of the index”. In practice, that means it can keep the oil companies on while leaving out big players like parent platforms Facebook and Wells Fargo & Co.

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Dorn said Tesla’s ESG score was down slightly from the “22” it received last year. At the same time, the average score of other automakers improved, excluding Tesla from the ESG index due to a rule against including bottom quartile performance.

Dorn and others did not immediately describe other details such as why Twitter or Phillips 66 were added or other companies dropped.

Among other major ESG rating agencies, MSCI Inc gives Tesla a “medium” ESG rating, while Morningstar Inc’s Sustainalytics unit gives Tesla a “medium risk” rating, according to the companies’ websites.

On Wednesday, a U.S. safety regulator opened a special investigation into a Tesla crash this month in California, among more than 30 crashes under investigation involving advanced driver assistance systems. [nL2N2XA2CY]

In February, a California state agency sued Tesla over allegations by black workers that the company tolerated racial discrimination at an assembly plant, adding to allegations made in several other lawsuits.

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