Wed, May 18, 2022
By Ross Kerber and Hyunjoo Jin
(Reuters) -An S&P Dow Jones Indices executive told Reuters on Wednesday it has removed electric carmaker Tesla Inc from the widely followed S&P 500 ESG Index because of issues including claims of racial discrimination and crashes linked to its autopilot vehicles, and Tesla CEO Elon Musk responded with harsh tweets including that "ESG is a scam".
In it changes, effective May 2, the sustainability index also added soon-to-be-Musk-controlled Twitter Inc and oil refiner Phillips 66 while dropping Delta Air Lines and Chevron Corp, according to an announcement.
The back-and-forth over the index changes reflects a wider debate about the metrics used to judge corporate performance on environmental, social and governance (ESG) issues, a growing area of investing.
Tesla has become the most valuable auto industry company by pioneering EVs and expanding into battery storage for electric grids and solar-power systems.
Factors contributing to its departure from the index included Tesla's lack of published details related to its low carbon strategy or business conduct codes, said Margaret Dorn, S&P Dow Jones Indices' head of ESG indices for North America, in an interview.
Even though Tesla's products help cut planet-warming emissions, Dorn said, its other issues and lack of disclosures relative to industry peers should raise concerns for investors looking to judge the company across 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 across all those 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 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."
Asked about the tweet, a representative for the index provider said Musk may have been referring to a list on a company blog post https://www.indexologyblog.com/2022/05/17/the-rebalancing-act-of-the-sp-500-esg-index of the largest 10 constituents by market cap of the S&P 500 ESG Index after the removal of Tesla and others. The list is "not a ranking of best companies by ESG score," the representative said.
Exxon now accounts for 1.443% of the weight of the index. Apple Inc was the largest at 9.657%.
GROWING CONCERNS
Investors concerned about issues like diversity and climate change have poured billions of dollars into funds using ESG criteria to pick stocks, prompting debate about how effectively the funds promote change or whether they push companies too much 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 the firm and its rivals conflate too many issues by bundling ESG concerns into one total score.
For instance a fund based on the S&P 500 ESG Index, the SPDR S&P 500 ESG ETF, received the low rating "D" by climate activist research group As You Sow, which noted despite its title and sustainability mandate, fossil fuel stocks make up 6.5% of fund assets.
In the company blog post reviewing changes from April 22, S&P's Dorn said the index aims to keep industries weighted the same as they are in the regular S&P 500 index "while enhancing the overall sustainability profile of the index." In practice that means it can keep oil companies while leaving out big players like Facebook parent Meta Platforms and Wells Fargo & Co.
Dorn said Tesla's ESG score had declined slightly from the "22" it received last year. At the same time the average score among other automakers improved, pushing Tesla out of the ESG index because of a rule against including lowest-quartile performers.
Dorn and others did not immediately describe other details such as the reasons Twitter or Phillips 66 were added or other companies dropped.
Among other big ESG ratings agencies, MSCI Inc gives Tesla an "average" ESG rating, while the Sustainalytics unit of Morningstar Inc gives Tesla a "medium risk" rating, according to the firms' websites.
On Wednesday a U.S. safety regulator opened a special crash 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 claims made in several other lawsuits.
(Reporting by Ross Kerber; Editing by Pete Henderson, Aurora Ellis and David Gregorio)
Tesla’s Removal From S&P Index Sparks Debate About ESG Ratings
Tim Quinson
Thu, May 19, 2022
(Bloomberg) -- A benchmark ESG stock index has removed Tesla Inc., sparking a debate about which companies do — and don’t — pass muster with socially aware investors.
Tesla has grown into a $735 billion company on the back of its breakthrough electric-vehicle engineering. Its own carbon footprint is a small fraction of its peers, and its success in the market has pushed the industry overall away from gas-powered vehicles.
But the other components of ESG — the social and governance risks — give investors pause. Chief Executive Officer Elon Musk is an unconventional manager, prone to impulsive tweeting, and the company discloses very little information about its workforce or labor conditions.
That split became material Wednesday after it emerged that Tesla was expelled from the ESG version of the S&P 500 Index. Musk responded by saying ESG is “a scam.” It added to an already bad day for the company, whose stock fell 6.8% amid a broad selloff in tech shares.
“This all speaks to the big inconvenient fact about ESG: You can’t keep the baby and throw out the bathwater,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “You have to accept or reject both.”
Read more: ESG Investing Is Mostly About Sustaining Corporations
In a report, analysts at Bloomberg Intelligence wrote that Tesla’s ESG status remains among the most debated for any company, with many ESG-labeled funds still holding the stock. In fact, the world’s largest ESG-focused exchange-traded fund has about 1.8% of its assets invested in Tesla, according to data compiled by Bloomberg.
The fund, BlackRock Inc.’s $21.9 billion iShares ESG Aware MSCI USA ETF (ticker ESGU), tracks the MSCI USA Extended ESG Focus Index, which still includes Tesla as a member.
Balchunas and BI’s Shaheen Contractor wrote Wednesday that eight of the 15 largest US funds that include ESG in their portfolio filters have significant positions in Tesla.
“Though Tesla might fit an environmental focus or impact theme, the company’s social and governance issues make its inclusion in ESG funds debatable and Tesla’s removal from the S&P 500 ESG Index perhaps overdue,” the analysts said in their posting entitled “Is Tesla ESG?”
S&P Dow Jones Indices, which removed Tesla from its S&P 500 ESG Index, said the company’s score on environmental, social and governance standards has remained “fairly stable” over the past year, but it has slipped down the ranks against improving global peers.
The index provider cited concerns related to working conditions and Tesla’s handling of an investigation into deaths and injuries linked to its driver-assistance systems. A lack of low-carbon strategy and codes of business conduct also counted against Musk’s company, it said.
“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,” Margaret Dorn, senior director and head of ESG indexes for S&P Dow Jones in North America, said in a Tuesday blog post.
Read more: Tesla Loses S&P ESG Index Spot on Crashes, Work Conditions
For months now, Tesla has been critical of ESG. The company said in its annual report that ESG ratings are “fundamentally flawed,” and in an April tweet, Musk said “corporate ESG is the devil incarnate.”
From a market standpoint, Tesla’s removal from the S&P index probably will be minimal as there was only about $11.7 billion that tracked S&P ESG gauges as recently as the end of 2020. By contrast, trillions of dollars track the main S&P 500 gauge.
Investors are split on S&P’s decision. Kristin Hull, founder of Nia Impact Capital, a sustainability fund in Oakland, California, that has been pressing Tesla to address worker issues, said she was relieved that there was “finally accountability.”
Zach Stein, chief investment officer of Carbon Collective, a climate-change focused online investment adviser based in Berkeley, California, said the opposite. The biggest issue in ESG is climate change, so kicking out the leading maker of electric vehicles makes no sense, especially since companies like Exxon Mobil Corp. remain in the S&P index, he said.
©2022 Bloomberg L.P.
Tim Quinson
Thu, May 19, 2022
(Bloomberg) -- A benchmark ESG stock index has removed Tesla Inc., sparking a debate about which companies do — and don’t — pass muster with socially aware investors.
Tesla has grown into a $735 billion company on the back of its breakthrough electric-vehicle engineering. Its own carbon footprint is a small fraction of its peers, and its success in the market has pushed the industry overall away from gas-powered vehicles.
But the other components of ESG — the social and governance risks — give investors pause. Chief Executive Officer Elon Musk is an unconventional manager, prone to impulsive tweeting, and the company discloses very little information about its workforce or labor conditions.
That split became material Wednesday after it emerged that Tesla was expelled from the ESG version of the S&P 500 Index. Musk responded by saying ESG is “a scam.” It added to an already bad day for the company, whose stock fell 6.8% amid a broad selloff in tech shares.
“This all speaks to the big inconvenient fact about ESG: You can’t keep the baby and throw out the bathwater,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “You have to accept or reject both.”
Read more: ESG Investing Is Mostly About Sustaining Corporations
In a report, analysts at Bloomberg Intelligence wrote that Tesla’s ESG status remains among the most debated for any company, with many ESG-labeled funds still holding the stock. In fact, the world’s largest ESG-focused exchange-traded fund has about 1.8% of its assets invested in Tesla, according to data compiled by Bloomberg.
The fund, BlackRock Inc.’s $21.9 billion iShares ESG Aware MSCI USA ETF (ticker ESGU), tracks the MSCI USA Extended ESG Focus Index, which still includes Tesla as a member.
Balchunas and BI’s Shaheen Contractor wrote Wednesday that eight of the 15 largest US funds that include ESG in their portfolio filters have significant positions in Tesla.
“Though Tesla might fit an environmental focus or impact theme, the company’s social and governance issues make its inclusion in ESG funds debatable and Tesla’s removal from the S&P 500 ESG Index perhaps overdue,” the analysts said in their posting entitled “Is Tesla ESG?”
S&P Dow Jones Indices, which removed Tesla from its S&P 500 ESG Index, said the company’s score on environmental, social and governance standards has remained “fairly stable” over the past year, but it has slipped down the ranks against improving global peers.
The index provider cited concerns related to working conditions and Tesla’s handling of an investigation into deaths and injuries linked to its driver-assistance systems. A lack of low-carbon strategy and codes of business conduct also counted against Musk’s company, it said.
“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,” Margaret Dorn, senior director and head of ESG indexes for S&P Dow Jones in North America, said in a Tuesday blog post.
Read more: Tesla Loses S&P ESG Index Spot on Crashes, Work Conditions
For months now, Tesla has been critical of ESG. The company said in its annual report that ESG ratings are “fundamentally flawed,” and in an April tweet, Musk said “corporate ESG is the devil incarnate.”
From a market standpoint, Tesla’s removal from the S&P index probably will be minimal as there was only about $11.7 billion that tracked S&P ESG gauges as recently as the end of 2020. By contrast, trillions of dollars track the main S&P 500 gauge.
Investors are split on S&P’s decision. Kristin Hull, founder of Nia Impact Capital, a sustainability fund in Oakland, California, that has been pressing Tesla to address worker issues, said she was relieved that there was “finally accountability.”
Zach Stein, chief investment officer of Carbon Collective, a climate-change focused online investment adviser based in Berkeley, California, said the opposite. The biggest issue in ESG is climate change, so kicking out the leading maker of electric vehicles makes no sense, especially since companies like Exxon Mobil Corp. remain in the S&P index, he said.
©2022 Bloomberg L.P.
Why S&P booted Tesla from its
ESG index
Tesla is no longer up to par with environmental, social and government standards — at least not those set forth by the S&P 500 ESG Index.
S&P Dow Jones Indices has removed electric-vehicle giant Tesla (TSLA) from its sustainability benchmark as part of the index’s fourth annual rebalance after the Elon Musk-led company’s ESG rank slipped against its global peers, the index provider revealed in a Tuesday statement.
“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,” Margaret Dorn, Head of ESG Indices at S&P Dow Jones said in a blog post.
Tesla’s overall ESG score has remained “fairly stable” year-over-year, according to S&P DJI. However, an increase in score for the broader industry group in which Tesla is categorized – Automobiles & Components – resulted Tesla's slide.
Musk, for his part, stated his disagreement with S&P's decision in a tweet on Wednesday, calling ESG “an outrageous scam.”
Tesla did not immediately respond to a request from Yahoo Finance for comment.
S&P Dow Jones Indices cited claims of racial discrimination and poor working conditions at Tesla’s flagship factory and its handling of a federal investigation into deaths linked to its autopilot vehicles in its decision to remove Tesla from the index.
Tesla has faced scrutiny in recent years over claims of poor working conditions at its Fremont, California factory, and Musk has voiced criticisms of efforts by some Tesla employees to unionize.
“There are a lot of folks who do not like the actions that Elon Musk takes, and there are a lot of problems with Tesla, including the way that they treat their employees on the factory floors,” Zach Stein, co-Founder of the sustainable investing platform Carbon Collective, told Yahoo Finance in an interview.
Stein added, however, that it does not make sense to remove them from the index entirely. "We wouldn't see the transition to electric vehicles at nearly the pace that we are seeing now without the work of Tesla," Stein said, also noting that ESG in general is a fundamentally opaque process.
“One way that we like to put it is, your friends are never going to be perfect, but you still have to work with them.”
Berkshire Hathaway (BRK.B), Johnson & Johnson (JNJ), and Meta Platforms (FB) were among other big-name companies that did not make the cut in S&P's latest reshuffle, while Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN) are among the largest constituents of the index.
—
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc
Musk Mad Tesla Removed from S&P 500 ESG Index
Tesla CEO Elon Musk is unhappy that the EV company was deleted from the S&P 500 ESG Index.
ELLEN CHANG
Tesla CEO Elon Musk is unhappy that the EV company was deleted from the S&P 500 ESG Index.
ELLEN CHANG
TheStreet
MAY 18, 2022
Tesla ( (TSLA) - Get Tesla Inc Report) CEO Elon Musk is extremely unhappy that the EV company was eliminated from the S&P 500 ESG Index on Wednesday, voicing his concerns on Twitter.
The electric automaker was taken off the ESG index by S&P Dow Jones Indices due to Tesla's ongoing issues of racial discrimination claims from employees and how it has dealt with a National Highway Traffic Safety Administration (NHTSA), a government investigation after several crashes were connected to its autopilot vehicles.
The changes are retroactive: they are effective May 2 and a May 17 S&P Dow Jones Indices blog post described the rationale. This is the fourth annual rebalance by the index company.
"Tesla was ineligible for index inclusion due to its low S&P DJI ESG Score,3 which fell in the bottom 25% of its global GICS® industry group peers," wrote Margaret Dorn, senior director, head of ESG Indices, North America S&P Dow Jones Indices.
Other companies, including Berkshire Hathaway ( (BRK.A) - Get Berkshire Hathaway Inc. Class A Report), Johnson & Johnson ( (JNJ) - Get Johnson & Johnson Report) and Meta ( (FB) - Get Meta Platforms Inc. Class A Report) also were eliminated and "have once again met the index methodology’s chopping block," she wrote.
Even though Tesla has a "self-declared mission" to "accelerate the world’s transition to sustainable energy,” the company was eliminated because its ESG score fell in comparison to other auto companies, Dorn wrote.
Tesla Failed Two Major Criteria
Several factors contributed to Tesla's lower ESG score, including a "decline in criteria level scores related to Tesla’s (lack of) low carbon strategy and codes of business conduct," she wrote.
Additional analysis also showed that there were "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 NHTSA investigation after multiple deaths and injuries were linked to its autopilot vehicles," Dorn wrote.
These two events resulted in a negative impact on the company’s S&P DJI ESG Score at the criteria level and also its overall score.
"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," she wrote.
Musk retorted on Twitter that Tesla is doing the opposite and helping the environment.
He compared Tesla to oil producer Exxon (XOM) and said he believes that ESG is a "scam" due to "phony social justice warriors."
Musk also blamed S&P Global Ratings and said that ESG is a "scam" even though the investment industry adopted ESG metrics several years ago as investors seek improvements in lower carbon goals, greater diversity in the workforce and more corporate governance.
The billionaire has regularly voiced his displeasures out on Twitter (TWTR) - Get Twitter, Inc. Report, a company he sought to acquire with a $44 billion offer to privatize the social media company in April. He has recently challenged Twitter's board of directors and management and said on May 17 that he wants the microblogging website to verify its data on the number of spam accounts and challenged them by stating the takeover deal is no longer on the table.
"My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does," Musk said.
Twitter's board stood up to his challenge and said they would "close the transaction and enforce the merger agreement."
BY ELLEN CHANG
MAY 18, 2022
Tesla ( (TSLA) - Get Tesla Inc Report) CEO Elon Musk is extremely unhappy that the EV company was eliminated from the S&P 500 ESG Index on Wednesday, voicing his concerns on Twitter.
The electric automaker was taken off the ESG index by S&P Dow Jones Indices due to Tesla's ongoing issues of racial discrimination claims from employees and how it has dealt with a National Highway Traffic Safety Administration (NHTSA), a government investigation after several crashes were connected to its autopilot vehicles.
The changes are retroactive: they are effective May 2 and a May 17 S&P Dow Jones Indices blog post described the rationale. This is the fourth annual rebalance by the index company.
"Tesla was ineligible for index inclusion due to its low S&P DJI ESG Score,3 which fell in the bottom 25% of its global GICS® industry group peers," wrote Margaret Dorn, senior director, head of ESG Indices, North America S&P Dow Jones Indices.
Other companies, including Berkshire Hathaway ( (BRK.A) - Get Berkshire Hathaway Inc. Class A Report), Johnson & Johnson ( (JNJ) - Get Johnson & Johnson Report) and Meta ( (FB) - Get Meta Platforms Inc. Class A Report) also were eliminated and "have once again met the index methodology’s chopping block," she wrote.
Even though Tesla has a "self-declared mission" to "accelerate the world’s transition to sustainable energy,” the company was eliminated because its ESG score fell in comparison to other auto companies, Dorn wrote.
Tesla Failed Two Major Criteria
Several factors contributed to Tesla's lower ESG score, including a "decline in criteria level scores related to Tesla’s (lack of) low carbon strategy and codes of business conduct," she wrote.
Additional analysis also showed that there were "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 NHTSA investigation after multiple deaths and injuries were linked to its autopilot vehicles," Dorn wrote.
These two events resulted in a negative impact on the company’s S&P DJI ESG Score at the criteria level and also its overall score.
"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," she wrote.
Musk retorted on Twitter that Tesla is doing the opposite and helping the environment.
He compared Tesla to oil producer Exxon (XOM) and said he believes that ESG is a "scam" due to "phony social justice warriors."
Musk also blamed S&P Global Ratings and said that ESG is a "scam" even though the investment industry adopted ESG metrics several years ago as investors seek improvements in lower carbon goals, greater diversity in the workforce and more corporate governance.
The billionaire has regularly voiced his displeasures out on Twitter (TWTR) - Get Twitter, Inc. Report, a company he sought to acquire with a $44 billion offer to privatize the social media company in April. He has recently challenged Twitter's board of directors and management and said on May 17 that he wants the microblogging website to verify its data on the number of spam accounts and challenged them by stating the takeover deal is no longer on the table.
"My offer was based on Twitter’s SEC filings being accurate. Yesterday, Twitter’s CEO publicly refused to show proof of <5%. This deal cannot move forward until he does," Musk said.
Twitter's board stood up to his challenge and said they would "close the transaction and enforce the merger agreement."
BY ELLEN CHANG
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