(Updates with details about other changes to the sustainability
index, and criticism that ESG ratings conflate too many issues)
May 18 - An S&P Dow Jones Indices executive told
Reuters on Wednesday it has removed electric carmaker Tesla 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 and
oil refiner Phillips 66 while dropping Delta Air Lines
and Chevron Corp, 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
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
Musk tweeted https://twitter.com/elonmusk/status/1526958110023245829
that "Exxon is rated top ten best in world for environment,
social & governance (ESG) by S&P 500, while Tesla didnt make
the list! ESG is a scam. It has been weaponized by phony social
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
Exxon now accounts for 1.443% of the weight of the index.
Apple Inc was the largest at 9.657%.
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 Inc.
Musk and others have complained the firm and its rivals
conflate too many issues by bundling ESG concerns into one total
For instance a fund based on the S&P 500 ESG Index, the SPDR
S&P 500 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 parent Meta Platforms and Wells
Fargo & 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
Dorn and others did not immediately describe other details
such as the reasons Twitter or Phillips 66 were added or other
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.
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.
(Reporting by Ross Kerber; Editing by Pete Henderson, Aurora
Ellis and David Gregorio)