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.
Two years ago, Tesla was removed from a market benchmark—the S&P 500 ESG Index—mainly because of concerns about workplace-related issues. Tesla was put back into the index last year after it provided additional disclosures about its hiring practices, climate risks and supply-chain strategy.
Sibarium's article pointed out that S&P Global's latest ESG rankings gave EV maker Tesla a score of 37 – and tobacco giant Philip Morris an 84. The London Stock Exchange gave British American Tobacco an ESG rating of 94, and Tesla a more middling 65.
Musk envisions a future where individuals can power their homes and charge their electric vehicles using clean, renewable energy from solar panels and energy storage solutions. This holistic approach to energy consumption aligns with Musk's broader vision of a sustainable energy ecosystem.
Some supporters think the term has become so broad as to lose much of its meaning. Many point to the prevalence of greenwashing, which is when companies exaggerate the environmental benefits of their actions. Other criticisms focus on the way fund managers rank companies by how they're performing on ESG factors.
That could steer private capital away from his business interests as some money managers have mandates to direct their funds toward companies deemed more ethical than others. “ESG is the devil,” wrote Musk on Wednesday in response to a report published in the Washington Free Beacon.
ESG risks, which stand for environmental, social, and corporate governance – refer to a company's environmental, social, and governance factors which could create a bad reputation, such as by greenwashing or harming the company financially.
Sustainalytics, a sustainability data and analytics firm owned by Morningstar, gives Tesla a Medium ESG Risk Rating, citing weak product governance and other issues. S&P's action illustrates the ongoing tensions in the world of sustainable investing.
The combination of tobacco and environmental, social and governance (ESG) activities is as fundamentally flawed as “tobacco and corporate social responsibility” or “tobacco and human rights.”
Numerous tobacco companies in recent years have focused on vaping and other “smoke-free” nicotine products, claiming that those cigarette alternatives are less harmful to consumers. Companies also appear to have focused more on diversity, equity and inclusion, which in some cases has helped their ESG scores.
Additionally, by its own report, Tesla has a lower water consumption for manufacturing per car, which helps increase sustainability a bit. Lastly, all of the manufacturing for Teslas is done in the U.S. and in accordance with standards set by the Environmental Protection Agency (EPA), which helps cut down on emissions.
Elon Musk is a visionary entrepreneur known for founding and leading companies like Tesla and SpaceX. His goal is to advance technology and sustainability, with a focus on electric vehicles, renewable energy, and space exploration.
By promoting the adoption of EVs and renewable energy sources, Tesla is helping to reduce the world's dependence on fossil fuels and mitigate the effects of climate change. Additionally, Tesla has committed to using sustainable materials in its products, such as recycled metals and plant-based fabrics.
Critics say ESG investments allocate money based on political agendas, such as a drive against climate change, rather than on earning the best returns for savers.
Ironically, viewing sustainability through an Environmental, social, and governance (ESG) risk and financial materiality lens still systematically underestimates future financial risks and fails to identify emerging opportunities. Data and information being used to make decisions is not decision useful.
If ESG efforts are not overly expressed as part of the company's values and with clear goals that can be measured, they can cause disruptions and loss of productivity.
An ESG controversy case is defined as either an event or an ongoing situation in which company operations and/or products allegedly have a negative environmental, social and/or governance impact.
Earlier this month, the Bay Area Air Quality Management District accused Tesla of allowing "unabated emissions" in Fremont. The district is not involved in the new lawsuit. The agency said Tesla has received 112 violation notices in the past five years.
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