In A Parallel Universe, Oil Companies Included In S&P 500 ESG Index While Tesla Kicked Out… Oh, Wait


In some weird parallel universe, Tesla was kicked out of the S&P 500 Environmental, Social, and Governance (ESG) Index while oil companies were added to it. Oh, wait, we are in that parallel universe. CNN notes that both Exxon and Marathon Oil were added to the index at the same time that Tesla was removed.

CNBC reported that these changes to the index took effect on May 2, and according to a spokesperson, Tesla’s “lack of a low-carbon strategy” as well as “codes of business conduct” were cited as reasons why.

According to the S&P spokesperson, “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.”

Tesla CEO Elon Musk called into question the integrity of the S&P Global Ratings, calling the ESG a scam being weaponized by phony social justice warriors. That may seem a bit extreme of a take to some, but if you take into account what I’ve noted in this article, it would seem as if the ESG scores are influenced by more than just data.

Reuters also reported on the matter and on Elon Musk’s response. It included an interview with Margaret Dorn, S&P Dow Jones Indices’ head of ESG indices for North America. Dorn told Reuters that Tesla’s lack of published details related to its low carbon strategy or business conduct codes were factors in the eventual ranking.

“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.”

Perhaps she’s unaware of Tesla’s Impact Report, which was recently released by the company. When Reuters asked about Elon Musk’s tweet, another representative for the index provider said that the Tesla CEO might have been referring to a list on the company blog that included the largest 10 constituents by market cap of the S&P 500 ESG Index after Tesla and others had been removed . That list included Exxon but not Tesla.

Image credit: S&P Dow Jones Indices LLC

In another blog, Dorn shared more details as to why Tesla was excluded.

“First and foremost, the GICS industry group in which Tesla is assessed (Automobiles & Components) experienced an overall increase in its average S&P DJI ESG Score. So, while Tesla’s S&P DJI ESG Score has remained fairly stable year-over-year, it was pushed further down the ranks relative to its global industry group peers.4.

“A few of the factors contributing to its 2021 S&P DJI ESG Score were a decline in criteria level scores related to Tesla’s (lack of) low carbon strategy5 and codes of business conduct.6 In addition, a Media and Stakeholder Analysis,7 a process that seeks to identify a company’s current and potential future exposure to risks stemming from its involvement in a controversial incident, identified 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.

“Both of these events had a negative impact on the company’s S&P DJI ESG Score at the criteria level, and subsequently 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.”

Are ESG Ratings Even Legit?

In 2013, Greenpeace shared a collage of photos from decades of Exxon oil spills and explosions. Although 2013 is almost a decade ago, it wasn’t too long ago that the Exxon plant near me had an event that sounded like an explosion to all of us, but according to officials was just a fireball. Last year, the same Exxon plant near me was found to produce 350 pounds of particulate matter per hour according to an independent test conducted in January 2020. The Baton Rouge plant produces 517,000 barrels of oil daily and is around five miles from my home.

But Tesla gets kicked off the index while Exxon and other oil companies remain?

In that previous article, I noted other influences affecting Tesla’s ESG score. I also gave a comparison between Tesla and a few oil companies, including Exxon. To recap, ExxonMobil’s ESG score was worse than Tesla’s. So, how does an oil company with a worse ESG score than Tesla’s get to stay in the S&P 500 ESG Index? We are either living in a parallel universe or perhaps Elon Musk is right about ESG scores.


 


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