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Tesla cut from S&P 500 ESG Index, and Elon Musk tweets his fury

Stock Markets May 19, 2022 12:12PM ET
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© Reuters. FILE PHOTO: The logo of car manufacturer Tesla is seen at a dealership in London, Britain, May 14, 2021. REUTERS/Matthew Childs/File Photo/File Photo

By Ross Kerber and Hyunjoo Jin

(Reuters) -An S&P Dow Jones Indices executive told Reuters on Wednesday it has removed electric carmaker Tesla (NASDAQ:TSLA) 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 (NYSE:TWTR) and oil refiner Phillips 66 (NYSE:PSX) while dropping Delta Air Lines (NYSE:DAL) and Chevron Corp (NYSE:CVX), 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 (NYSE:XOM) 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 (NASDAQ:AAPL) 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 (NYSE:SPGI) 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 (NYSE:SPY) 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 (NASDAQ:FB) parent Meta Platforms and Wells Fargo (NYSE:WFC) & 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.

Tesla cut from S&P 500 ESG Index, and Elon Musk tweets his fury
 

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Comments (34)
Mike Brarey
Mike Brarey May 25, 2022 12:06AM ET
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it's ESG not just E
Stacey Edwards
Stacey Edwards May 19, 2022 6:20PM ET
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Worried about climate change? Plant some trees!
Gregory Paulson
Gregory Paulson May 19, 2022 4:13PM ET
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ESG is big brother overreach that will creep into everyday citizens’ lives, simikar to what China is doing to their own people. If you dont cower down to whatever theyre pedaling they can freeze bank accounts and your credit msking you a homeless outcast. This needs to stop immediately within the US. Clearly none of our politicians are doing anything about it. Elon is right, it is a scam of power, control and overreach.
Mark Jannetty
Mark Jannetty May 19, 2022 11:34AM ET
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that makes me want a Tesla. avoid all ESG companies whenever possible
Samui Lo
Samui Lo May 19, 2022 11:34AM ET
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But I thought you were against cancel culture? 🤔
Tru Gfu
Tru Gfu May 19, 2022 10:44AM ET
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Elon Musk is furious that some hidden things are becoming public. he has always been a Republikan but Republicans don't buy Teslas so he tried to hide that. now that it is obvious that he is Trump (with far better investment returns) the left will stop buying Teslas and his volume and wealth will crater. and his remaining billions will still be taxed. double bummer for billionaires
Matt Kay
Matt Kay May 19, 2022 10:24AM ET
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so many elon bootlickers in this thread
Tru Gfu
Tru Gfu May 19, 2022 10:24AM ET
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so many on this website. crypto and the #gqp court the same folks because both succeed when people believe what they've been told and can't evaluate it themselves analytically
Jeff Kenkel
Jeff Kenkel May 19, 2022 8:05AM ET
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Communists being communists is all the ESG is about and all a person needs to know about it . SCAM
Tru Gfu
Tru Gfu May 19, 2022 8:05AM ET
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can you even define communist jeff? or fascist or nazi? or do you just say it because your heard it on Fox. ESG supports private ownership. that is still 100% capitalism and not communist at all. it is fine to not like it or have your opinion but lying about is actually fascist propaganda. ESG wants better capitalism not communism.
Tru Gfu
Tru Gfu May 19, 2022 8:05AM ET
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let's go Jeff! #bebetter
gab nea
gab nea May 19, 2022 7:04AM ET
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the regulators charge that tesla lack of published details of its mission statement? isn't that's what he is accusing twitter of? what a hypocrite, worst than trump.
gab nea
gab nea May 19, 2022 6:56AM ET
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so, Elon tolerates racial discrimination at his assembly plants. is he a racist? why is he so loved by republicans? oh birds of a feather fly together!
Brad Albright
Brad Albright May 19, 2022 6:56AM ET
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He's from South Africa. You can figure it out.
Corey DeLaplain
SniperSam May 19, 2022 6:10AM ET
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Elon's a good man, glad he pointed out what a scam this index is! Glad his companies hire based on merit, as should all ! No company needs dead weight based on worthless federal government quotas! Regulation has destroyed this once great nation as well!
gab nea
gab nea May 19, 2022 6:10AM ET
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the republican regressive backward policies are ruining this country. they love putin over biden , can you imagine?
gab nea
gab nea May 19, 2022 6:10AM ET
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I am sure you say donald is a good man too and the Charlottesville racists were fine people too, you must be another gullible republican.
Brad Albright
Brad Albright May 19, 2022 6:10AM ET
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Minority workers = dead weight, says the racist.
 
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