Tesla dropped from S&P 500 ESG Index, Musk tweets his anger

NEW YORK: An S&P Dow Jones Indices executive yesterday told Reuters that electric car maker Tesla Inc was removed from the closely watched S&P 500 ESG Index over issues including allegations of racial discrimination and accidents involving its Autopilot vehicles, and Tesla CEO Elon Musk responded with harsh tweets including that “ESG is a scam”.

In its changes, which went into effect on May 2, the sustainability index also added Twitter Inc and Phillips 66 oil refiner, soon to be controlled by Musk, while Delta Air Lines and Chevron Corp were dropped, according to an announcement.

The back-and-forth over the index changes reflects a broader debate about the metrics used to assess company performance across 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 grid battery storage and solar power systems.

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

Although Tesla’s products help reduce planet-warming emissions, its other issues and lack of disclosures compared to industry peers should raise concerns among investors looking to evaluate the company on ESG criteria, Dorn said.

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

Tesla representatives did not immediately respond to questions. The company has previously described ESG methods as “fundamentally flawed”.

Musk tweeted: “The S&P 500 ranks Exxon in the top 10 in the world for Environmental, Social and Governance while Tesla didn’t make the list! ESG is a scam. It was armed by false social justice warriors.”

When asked about the tweet, a representative from the index provider said Musk may be referring to a list in a company blog post of the top 10 constituents by market cap of the S&P 500 ESG Index following the removal of Tesla and others. The list is “not a ranking of the best companies by ESG score,” the representative said.

Exxon now accounts for 1.443% of the index’s weight. Apple Inc was the largest with 9.657%.

Investors concerned about issues like diversity and climate change have poured billions of dollars into funds that use ESG criteria to select stocks, sparking debate about how effective the funds are at promoting change or whether they are making companies too very pressing 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 peers are confusing too many issues by bundling ESG concerns into one overall score.

In the company’s blog post reviewing the April 22 changes, S&P’s Dorn said the index aims to keep industry weights equal to those in the regular S&P 500 index, “while improving the overall sustainability profile of the index becomes”. In practice, this means oil companies can be held while big players like Meta Platforms, Facebook’s parent company, and Wells Fargo & Co. are left out.

Dorn said Tesla’s ESG score was down slightly from the “22” it received last year. At the same time, the average score among other automakers improved, knocking Tesla out of the ESG index for violating a rule against including top quartile performers.

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

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