Why Is Elon’s $35 Trillion Empire Excluded From ESG?
Elon Musk’s dismissal of ESG ratings as a “scam” demonstrates how Wall Street’s trendiest investing option, which spans $35 trillion in assets, means various things to different individuals.
On Wednesday, Tesla Inc’s CEO retaliated against S&P Global Inc after the electric carmaker was removed from its flagship ESG index. This is while certain firms with environmentally destructive operations, such as oil and gas producers, were a part of it. Musk expressed his displeasure with the action on Twitter; he said: “Despite Tesla doing more for the environment than any firm ever!”
How Did Tesla Get Here?
Tesla’s cars help to reduce carbon emissions; however, the company’s ESG score had “fallen behind” in other areas; this includes poor working conditions at its Fremont, California factory; racial discrimination claims; and its handling of a US government investigation into multiple deaths and injuries linked to its autopilot technology. Sustainable investment incorporates ESG concerns into portfolio selection. The Global Sustainable Investment Alliance estimates that it will reach $35.3 trillion by the start of 2020.
Moreover, Musk’s battle with S&P, according to a half-dozen investment managers, demonstrates how many investors and executives still have mixed feelings about the business. Hence, Some, including Musk, feel that the ratings should award corporations who do the best for the environment and society. However, others, including the businesses that develop the rankings, argue they should illustrate how much danger ESG elements pose to a company’s stock.
Exxon (NYSE: XOM) Corp is a big contributor to climate change; however, this explains why corporations like it can remain in an ESG index; provided they can demonstrate they are taking steps to mitigate the risk.
Musk is effectively combining ESG with sustainability. He “rightly pointed out” that societal and corporate governance issues are being used “for politically motivated cancelling”; moreover, a company’s commitment to the environment may also “mean what you want it to,” according to Mark Tinker, chief investment officer at Toscafund Hong Kong. “It’s all subjective,” Tinker explained.
