S&P Index A benchmark ESG stock index has removed Tesla Inc., sparking a debate about which companies do with socially aware investors.
Tesla has grown into a $735 billion company on the back of its 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.
That split became material on Wednesday after it emerged that Tesla was removed from the ESG version of the S&P 500 Index. CEO Elon Musk has responded by saying ESG is “a scam.” But the other components of ESG — the social and governance risks — give investors pause.
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 according to this source.
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.
S&P has 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 or no transparency 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
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.”
