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.
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.
The world's richest man – perhaps unsurprisingly – is not a fan of “woke capitalism”. “Why ESG is the devil…,” Elon Musk said in a preamble to an article that highlighted tobacco companies perform far higher than Tesla in environmental, social, and governance (ESG) rankings.
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.
Last year, the Tesla, SpaceX founder said ESG was a “scam” after his electric car company was ejected from the S&P 500 ESG index after only a year. Musk's criticism of ESG stems from the fact that tobacco firms tend to receive higher ESG ratings than electric-vehicle maker Tesla.
In a line used by proponents, those in opposition to the ESG movement also believe there is substantial support behind them. “ESG investments are often opposed by conservatives who feel that ESG investments favor one political ideology and pressures companies to adopt 'woke' policies they don't support,” says Bruce.
One of the main challenges is that ESG scoring methodologies tend to focus on how well companies manage their internal processes, rather than the real-world impacts of their products and services.
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, Tesla has faced many ethical issues in the workplace from whistleblower retaliation to violating labor laws. The EV company has also struggled with supply chain management, often failing to meet crucial deadlines and production goals.
Heated tobacco products produce emissions that are not as safe as clean air. Studies of secondhand emissions from heated tobacco products suggest that the products expose both users and bystanders to some of the same chemicals found in cigarette smoke, although at lower levels than cigarette smoke.
However, there are also some cons to ESG investing. First, ESG funds may carry higher-than-average expense ratios. This is because ESG investing requires more research and due diligence, which can be costly. Second, ESG investing can be subjective.
ESG framework helps identify, organise, analyse, prioritise and accordingly guide decisions on various business risks. These risks, if left unaddressed can prove costly to the functioning and sustenance of businesses.
From our experience and research, ESG links to cash flow in five important ways: (1) facilitating top-line growth, (2) reducing costs, (3) minimizing regulatory and legal interventions, (4) increasing employee productivity, and (5) optimizing investment and capital expenditures (Exhibit 2).
Vanguard and BlackRock have nothing to do with it. You missed the point: Elon Musk is spacex and telsa, if spacex and telsa "are" vanguard/blackrock, then Elon Musk is one of their CEOs, even though he bought twitter on its "own" "money". SpaceX is also privately held.
Despite leading in electric vehicle innovation, Tesla's ESG score lags behind Shell's. Examining the three dimensions — Environmental, Social, and Governance — reveals surprising disparities.
Tesla reported a 40% decline in profit from the year before. Tesla has been navigating through a perfect storm. The EV environment is getting more crowded right as the company's fundamentals have come into question. Its share price has dropped about 60% from its 2021 all-time high of $407.
Sustainalytics has an ESG risk rating for Exxon of 36.5, indicating “high risk,” less than a score of 40 on its scale, which demarcates “severe” risk. Tesla, by comparison, comes in on the higher side of “medium risk,” with a score of 28.5 (high risk starts at 30).
Most importantly, the production of EV batteries generates far more emissions than the production process for ICE vehicles. Producing the battery alone for a Tesla generates between 5,291 and 35,273 pounds of CO2 emissions, which is up to three times higher than the emissions to manufacture a gas-powered car.
Introduction: My name is Gregorio Kreiger, I am a tender, brainy, enthusiastic, combative, agreeable, gentle, gentle person who loves writing and wants to share my knowledge and understanding with you.
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