Why Tesla was booted from S&P 500′s ESG index

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S&P 500 recently performed annual update to the list and kicked out Elon Musk’s electric vehicle company, Tesla, from its ESG Index, effective May 2, 2022. AppleMicrosoftAmazon and even oil and gas multinational Exxon Mobil were included in the list.

“ESG is a scam”, Musk tweeted. “It has been weaponized by phony social justice warriors”, he added.

Elon Musk on Twitter: “Exxon 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.” / Twitter

Investment firms use ESG ratings from companies such as MSCI, the largest ESG rating company, and Sustainalytics, owned by Morningstar, as a guide in screening stocks for inclusion in ESG and sustainable investment portfolios and funds.

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Margaret Dorn, the head of ESG Indices, North America, at S&P Dow Jones Indices wrote in a blog post that Tesla, which Elon Musk says was founded to put the world on a path to a sustainable-energy future, lacks low-carbon strategy.

Dorn stated in the post that Tesla’s “codes of business conduct,” along with racism and poor working conditions reported at its factory in Fremont, California, affected the score. Tesla’s handling of an investigation by the National Highway Transportation Safety Administration also impacted them negatively.

CNBC reported that the electric vehicle maker settled with the Environmental Protection Agency in February this year after years of Clean Air Act violations and neglecting to track its own emissions. Tesla ranked 22nd on last year’s Toxic 100 Air Polluters Index compiled annually by U-Mass Amherst Political Economy Research Institute — worse than Exxon Mobil, which came in 26th.

California’s Department of Fair Employment and Housing recently sued Tesla over allegation of anti-Black harassment and discrimination in its Fremont car plant. The agency says it found evidence that Tesla routinely kept Black workers in low-level roles at the company, gave them more physically demanding and dangerous assignments and retaliated against them when they complained about racist slurs.

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Last year, the National Labor Relations Board said Tesla had engaged in unfair labor practices, as well.

“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,” S&P spokesperson, Margaret Dorn, wrote in the blog post.

Reacting to the development, John Streur, the president and CEO of Calvert Research and Management and president of the Calvert funds, said there is “nothing about what we heard from S&P that would change our mind about Tesla.”

According to Barrons, Calvert is an investor with $37.2 billion under management as of March 30. He started investing in 1982 and reportedly owns Tesla stock in several of its indexes and funds, including the Calvert U.S. Large-Cap Core Responsible Index Fund (CISIX) and Calvert Global Energy Solutions Fund (CAEIX).

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“We look at Tesla and we see what an important impact they have had in an important sector in terms of reining in climate change, reining in carbon emissions,” Streur says. “We’re holding the [stock] in the context of a company with enormously ambitious plans, that is rapidly scaling on a global basis. And we are pushing them and engaging with them to continuously improve how they treat their employees and their environmental sustainability.”