3 ways Elon Musk violated ESG principles in his first days at Twitter

Back in May, a defiant Musk made headlines when Tesla got booted from S&P’s ESG Index, despite its stellar environmental impact. The company’s poor handling of traffic deaths, its difficult labor relations, and claims of racial discrimination sent it down to the bottom of the ranking. “ESG is a scam,” Musk said in response, claiming that the ratings agency “lost their integrity.”  

If you were among those nodding in agreement with Musk, believing he had done more to revolutionize the car industry than any other company—and that Tesla’s environmental impact should outweigh any other consideration—you’d have found yourself in our company. What good is an ESG index, if it doesn’t acknowledge a company that singlehandedly changed the transport paradigm?

Today, however, we are starting to see the contours of an answer to this seemingly rhetorical question. First, we now know, ESG is not about impact, but about risk. On those grounds, Musk-operated companies will continue to face the specter of subpar ESG scores. Risk, governance issues, and social conflict are baked into his way of doing business. As early cases in point at Twitter:

• Late last night, Musk fired the company’s board of directors and made himself the board’s sole member, according to a company filing Monday with the Securities and Exchange Commission. In terms of corporate governance, that’s a no-no. Should Twitter have been a public company, the decision surely would have earned it a meager score on the “G” of ESG.
• Earlier this week, tech site The Verge also reported that “Elon Musk has given employees their first ultimatum: Meet his deadline to introduce paid verification on Twitter or pack up and leave.” On the “S” aspect of ESG, these and other threats made publicly by Musk to employees would also be a no-go. Social governance of a company is meant to be based on respecting employees, not threatening them.
• Finally, a series of slip-ups by Twitter’s new owner show the broader societal risks of having limited governance. Following the attack on House Speaker Nancy Pelosi’s husband, for example, Musk responded, “There is a tiny possibility there might be more to this story than meets the eye,” linking to an article promoting an unfounded conspiracy theory about the attack on Paul Pelosi. That tweet later disappeared, but these and other Musk tweets have only fueled societal discord in recent months.

With hindsight, do these incidents vindicate S&P in its assessment of Musk’s Tesla?

In a written statement, S&P told me yesterday: “Tesla’s exclusion was determined by an independent index committee within S&P DJI that follows a rules-based published methodology.” That statement can’t take away the environmental revolution Musk has started at Tesla, but following a rules-based published methodology sure is a form of integrity—and one Twitter will need to succeed in the future.

More news below. 

Peter Vanham
@petervanham
peter.vanham@fortune.com

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AROUND THE WATERCOOLER

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Joe Biden accuses oil companies of ‘war profiteering’ and threatens a windfall tax if they don’t increase domestic production, by Bloomberg

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The pandemic killed watercooler moments. Apple, Netflix, and Uber’s watercooler company came back stronger than ever, by Lila MacLellan

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This edition of CEO Daily was edited by David Meyer.