Elon Musk blasts ESG as ‘the devil’ after tobacco stocks beat Tesla in sustainability indexes (2024)
Christiaan Hetzner
·3 min read
When it comes to ethical investing, tobacco companies selling a lifestyle product proven to cause cancer are leaving Elon Musk’s Tesla behind in a cloud of smoke, and it has left the entrepreneur steaming.
Reportedly thanks to a clever embrace of diversity, equity, and inclusion policies—which Musk calls “woke”—it has earned a higher score when it comes to environmental, social, and governance (ESG) criteria in recent sustainability indexes.
The article cited Tesla’s poor score upon reentering the S&P 500 sustainability index, receiving only 37 out of a maximum 100 points, versus the 84 achieved by cigarette merchant Philip Morris International.
Companies like PMI and Altria, which split up the rights to sell Marlboro in the spinoff of PMI from Altria, are responsible for an estimated 8 million cancer-related deaths worldwide every year and would not seem obvious candidates for ESG investment.
Yet the right-leaning publication reported the two companies have bumped up their score in various sustainability indexes including by emphasizing diversity in their boards, the funding of minority businesses, and other inclusive measures in an attempt to win back deep-pocketed asset managers.
The CEO of PMI told the Financial Timeslate last month he believed the cigarette seller could be classified as ethical again under ESG criteria by increasing the share of sales from products like smokeless tobacco.
Sure, you all wanted to know, right? @SPGlobalRatings do you have any credibility left? 🤮 And how come you didn't make the same hoopla this year (on April 21st) when you included Tesla back into the S&P 500 ESG index? Much more catchy last year, right? This time tiptoeing… pic.twitter.com/aUEUIVGidK
— 💙 Alexandra Merz (@TeslaBoomerMama) May 31, 2023
Greenwashing has undermined credibility
The idea of ethical investing quickly caught on in Europe, where companies can be (and have been) sued for failing to meet their net-zero commitments.
In the United States, however, Republicans have successfully branded ESG “woke capitalism” and dispute the core thesis that those companies act in the best interest of their investors by serving what they argue are progressive causes.
They have been aided in their argument by rampant abuse of the system—known as “greenwashing”—which has undermined credibility in ESG, even among its proponents.
In Europe, for example, political horse-trading threatens to turn a crackdown on greenwashing into a farce as member states squabble over the impact a harmonized set of criteria would have on their respective domestic industries.
Even Norges Bank, which has long enjoyed its reputation as a responsible investor, finds itself repeatedly under attack for its treatment of fossil fuels. While it is not permitted by law to invest in coal, it is free to invest in Exxon Mobil and BP, whose negligence caused the Valdez and Deepwater Horizon environmental disasters.
Musk himself became a vocal critic of ESG ever since Tesla was first booted from the S&P 500’ssustainability indexa year ago.
After Fortune reported some two weeks later about allegations over fraudulent ESG investing by Deutsche Bank, Musk claimed all ESG lists were suddenly fraudulent.
I have yet to see an ESG list that *isn’t* fraudulent
“ESG is the devil,” wrote Musk on Wednesday in response to a report published in the Washington Free Beacon. The article cited Tesla's poor score upon reentering the S&P 500 sustainability index, receiving only 37 out of a maximum 100 points, versus the 84 achieved by cigarette merchant Philip Morris International.
S&P Global decided to boot the automaker from the sustainable version of its flagship S&P 500 index, citing the company's weak handling of a federal investigation into multiple deaths linked to its self-driving cars and claims of racial discrimination and poor working conditions at its Fremont, California, factory.
Elon Musk is a proponent of renewable energy sources, particularly solar energy. Tesla's integration of solar technology, along with energy storage solutions, represents Musk's vision of creating a sustainable energy ecosystem.
The Bottom Line. ESG investing focuses on companies that follow positive environmental, social, and governance principles. Investors are increasingly eager to align their portfolios with ESG-related companies and fund providers, making it an area of growth with positive effects on society and the environment.
ESG stands for Environmental, Social and Governance. This is often called sustainability. In a business context, sustainability is about the company's business model, i.e. how its products and services contribute to sustainable development.
And the London Stock Exchange gives British American Tobacco an ESG score of 94—the third highest of any company on the exchange's top share index—while Tesla earns a middling 65. How could cigarettes, which kill over eight million people each year, be deemed a more ethical investment than electric cars?
In recent years, Telsa has been accused of allowing racial discrimination and poor working conditions at its Fremont Factory, as well as lacking a low carbon strategy and codes of business conduct. The claims are so troubling that Tesla was removed from the widely accepted S&P 500 ESG Index.
Like many economic factors, ESG factors exhibit diminishing returns, and trade-offs exist. Some ESG factors, such as employee satisfaction, have diminishing returns to scale but linear costs. Other ESG factors have hump shape relationships and ultimately negative returns.
It said that Tesla's “lack of a low-carbon strategy” and “codes of business conduct,” along with racism and poor working conditions reported at Tesla's factory in Fremont, California, affected the score. Tesla CEO Elon Musk has called ESG metrics the “Devil Incarnate.”
In 2020, Tesla customers helped accelerate the world's transition to sustainable energy by avoiding 5.0 million metric tons of CO2e emissions. In 2020, Tesla customers helped accelerate the world's transition to sustainable energy by avoiding 5.0 million metric tons of CO2e emissions.
Musk has made no secret of his ambition to help make humanity an interplanetary species. He built Starship, the world's most powerful rocket, with the express intention to do just that.
Elon Musk cofounded six companies, including electric car maker Tesla, rocket producer SpaceX and tunneling startup Boring Company. He owns about 12% of Tesla excluding options, but has pledged more than half his shares as collateral for personal loans of up to $3.5 billion.
“They may also argue that considering ESG factors could conflict with a fiduciary's duty to act in the best financial interests of plan participants. Some opponents also believe that ESG investing is politically motivated and could lead to biased investment decisions.”
Critics' misunderstanding of ESG integration does not mean that ESG-themed investment products are going away: environmental, social, and governance issues remain important to investors, corporate board and executive suites, regulators, employees, and customers regardless of political headwinds.
The term ESG first came to prominence in a 2004 report titled "Who Cares Wins", which was a joint initiative of financial institutions at the invitation of the United Nations (UN).
Environmental, social, and governance (ESG) scores are an essential tool for investors to assess a company's sustainability and ethical performance. These scores typically range from 0 to 100, with a score of less than 50 considered relatively poor and more than 70 considered good.
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