Musk claims S&P ‘lost their integrity’ after Tesla gets booted from sustainability index while Exxon is included

May 18, 2022, 5:34 PM UTC

Investigations into its Autopilot self-driving feature along with allegations over pervasive racism at Elon Musk’s Tesla factory in California have cost the world’s largest electric vehicle maker a place in the Standard & Poor’s sustainability index. 

On Tuesday, the index provider announced changes resulting from its annual rebalancing, revealing the electric vehicle pioneer failed to make the cut along with Berkshire Hathaway, Johnson & Johnson and Meta, while companies like ExxonMobil were left in.

Musk took to Twitter, saying “ESG is a scam” and adding that S&P had “lost their credibility.” He said the sustainability criteria put in place by S&P really have to do with “how compliant your business is with the leftist agenda.”

S&P said points were withdrawn from Tesla in part due to the lack of a low carbon strategy as well as issues surrounding its code of conduct, pushing it below industry peers that were catching up.

Yet reputational and regulatory risks appear to have really tripped up Tesla’s place on the index. 

During the provider’s Media and Stakeholder analysis, they identified two separate events “centered around claims of racial discrimination and poor working conditions at Tesla’s Fremont factory, as well as its handling of the (National Highway Traffic Safety Administration) investigation after multiple deaths and injuries were linked to its autopilot vehicles.”

As a result, its scores placed it in the bottom quartile of its sector, disqualifying it automatically from consideration. 

“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,” said Margaret Dorn, senior director and head of ESG Indices for North America.

Crude oil giant Exxon was among the 308 candidates included on the index, even though it is currently being probed by Massachusetts and New York over whether it to investors and the public regarding what it knew about climate change. A federal appeals court rejected Exxon’s effort to halt the probe earlier this year.

Explanations why Exxon was chosen instead of Tesla were not provided by Dorn in the statement.

No coal or tobacco

According to the ratings agency, the ESG 500 is not inherently designed to offer an outperformance over S&P 500 — indeed just the opposite is the case.  

It should maintain a risk and return profile similar to its own benchmark index, while simultaneously offering a distinct exposure to companies deemed more sustainable according to environmental, social and governance (ESG) criteria. Almost all sectors of the equity market are excluded from consideration, except ones such as thermal coal, tobacco and weapons manufacturing. 

By not including a megacap like Tesla, however, there is now a potential risk that the two indices could diverge more than intended.

Tesla has not had the best experience with agencies like S&P. The latter waited so long to add Tesla to the broader S&P 500 index that the EV maker was worth half a trillion dollars before it was picked, prompting consideration of how it could possibly digest such a large first-time entrant.

Moreover, Tesla’s debt rating is still in junk territory even though it was highly profitable and generated just over $5 billion in excess cash last year. 

“While Tesla and others may not have been included in the index this year, the beauty of the annual rebalance is that they will once again have an opportunity to be reviewed for inclusion in years to come,” Dorn said.

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