Why Tesla was excluded from the S&P 500’s ESG index

An aerial view of the Tesla Fremont factory on May 13, 2020 in Fremont, California.

Justin Sullivan | Getty Images

The S&P 500 has booted electric vehicle maker Tesla from an annual rebalancing ESG index. Meanwhile, Apple, Microsoft, Amazon and even oil and gas multinational Exxon Mobil have been included in the list.

The S&P 500 ESG Index uses environmental, social and administrative data to rank and effectively recommend companies to investors. Its criteria include hundreds of data points per company on how the business affects the planet and how it treats stakeholders outside of shareholders – including customers, employees, vendors, partners and neighbors.

The changes to the index took effect on May 2, and a spokesman for the index explained why they were made in a blog post published Wednesday.

It states that racism, including Tesla’s “lack of low-carbon strategy” and “code of business conduct,” and the bad work situation reported at the Tesla factory in Fremont, California, affected scores. Tesla’s management of an investigation by the National Highway Transportation Safety Administration also weighed on his score.

Although Tesla’s stated mission is to accelerate the transformation of the world into sustainable energy, in February of this year it settled with the Environmental Protection Agency after violating the Clean Air Act and neglecting to track its own emissions. Tesla ranks 22nd in the annual Toxic 100 Air Pollution Index compiled by the U-Mass Amherst Political Economy Research Institute – worse than Exxon Mobil, which ranks 26th. (Index uses data from 2019, the most recent available.)

The company also revealed in its first-quarter filing of Tesla that it was being investigated for waste management in the state of California and had been fined in Germany for failing to meet “obligation” obligations to the country for spent batteries. .

Meanwhile, the California Department of Fair Employment and Housing has filed a lawsuit against Tesla for anti-black harassment and discrimination at its Fremont car plant. The agency said it had found evidence that Tesla regularly held black workers in low-level roles in the company, gave them more physically demanding and dangerous assignments, and retaliated against them when they complained of racist slander.

Last year, the National Labor Relations Board said Tesla was involved in unfair labor practices.

“Although Tesla may have played a role in removing fuel-powered vehicles from the road, it lags behind its peers when testing through a wide ESG lens,” the S&P spokesman wrote.

Tesla CEO Elon Musk took to Twitter about the index on Wednesday morning, where he boasted more than 90 million followers, saying S&P global ratings had “lost their integrity.”

Musk wrote in an earlier tweet: “I am increasingly convinced that the corporate ESG is the devil incarnation.”

In a company impact report, Tesla writes:

“Current environmental, social and governance (ESG) reporting does not measure the scope for positive impact in the world. Instead, it focuses on measuring the dollar value of risk / return. That money can be used to buy shares of companies that make climate change worse, not better. “

In that report, Tesla claimed that other car manufacturers could achieve higher ESG ratings by reducing their greenhouse gas emissions and continuing to produce internal combustion engine vehicles.

Shares of Tesla fell more than 7% on Wednesday afternoon amid a sell-off in a broader market. The company’s stock has fallen more than 30% this year.

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