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Musk said that the S&P Globals Ratings have lost their integrity while calling the entire ESG thing a scam.
In a major turn of events on Wednesday, May 18, electric carmaker Tesla Inc (NASDAQ: TSLA) was cut off from the S&P 500 Index. This index measures the performance of the listed securities under sustainability criteria.
Tesla Cut from S&P 500 ESG Index
Speaking to Reuters, an S&P Dow Jones Indices executive said that Tesla’s removal from the ESG index comes due to claims of racial discrimination and crashes linked to its autopilot vehicles.
Of course, the removal of Tesla was enough to draw the ire of Elon Musk whose company has been relentlessly working to reduce its carbon footprint through its electric cars. Musk said that the irony was that oil and gas giant Exxon Mobil topped the chart for ESG. Lashing out at the S&P 500 in his harsh tweet, Musk said:
“Exxon is rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list! ESG is a scam. It has been weaponized by phony social justice warriors. @SPGlobalRatings has lost their integrity”.
He further lashed out for having a flawed system that fails to take into account the environmental benefits of a company. “Stop the outrageous false ESG assessments, where Tesla gets a bad grade, but an oil company can get a good grade. Total gaming of the system!” he added.
Elon Musk also receives some backing from industry players. Ark Invest’s Cathie Wood said: “Ridiculous. Not worthy of any other response”.
On Wednesday, Tesla (NASDAQ: TSLA) stock 6.8% ending the trading at $709. However, this could be part of the broader market correction with the Nasdaq Composite correcting 4.37%. The TSLA stock is down 40% year-to-date and trading at a 2022 low.
Growing Concerns Regarding the ESG Push
Investors have been concerned that issues of diversity and climate change have pushed billions of dollars into funds using the ESG criteria. This has fueled the debate regarding how efficiently these funds push actual change on the ground.
S&P Global Inc is the majority owner of the S&P Dow Jones Indices. Previously, Musk had complained that the firm conflates too many issues by bundling them into one total score.
Margaret Dorn, S&P Dow Jones Indices’ head of ESG indices for North America said that the index has the same weight for industries as in the regular S&P 500 index. Just that the ESG index enhances the overall sustainability profile of the index. This allows it to keep oil companies in the index.
Dorn said that Tesla’s lack of published details of its low carbon strategy or business conduct codes was the reason behind its removal. He added that Tesla’s ESG score declined from the 22 it has last year. “You can’t just take a company’s mission statement at face value, you have to look at their practices across all those key dimensions,” she said.