Food for Thought: ESG, Elon Musk, and true sustainability

Tesla CEO Elon Musk attends the official opening of the new Tesla electric car manufacturing plant. Credit: Christian Marquardt—Pool/Getty Images

In a surprising decision in May, electric vehicle manufacturer Tesla was removed from the S&P 500 ESG (Environmental, Social and Governance) index. S&P Dow Jones Indices noted the “car maker’s lack of low-carbon strategy and codes of business conduct, allegations relating to racial discrimination and poor working conditions at one of its factories, and the company’s handling of deaths and injuries linked to its driver-assistance systems” as reasons contributing to the removal.

Tesla founder and CEO Elon Musk shot back with a tweet, “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.”

It should be pointed out that the S&P 500 ESG goes across every business sector and assesses the top ten companies in each (including petroleum) for their overall ESG performance. That’s how Exxon qualified, despite its dismal record in many areas. While the rating system may not make sense to many of us, it has played an important role in driving even petroleum companies to improve their ESG. Is this truly green or greenwashing? Read the rest on our blog.

At the same time, Musk’s critique is shared by others about the value of ESG ratings. “In a study by InfluenceMap, some 71% of the 593 ESG funds studied failed a test to determine whether or not they were aligned with the Paris Agreement global targets,” reports Deloitte. Greenwashing is a significant concern with ESG indices.

However imperfect ESG designations currently are, they have played a key role in moving billions of investment dollars to socially responsible companies and hold the promise of corporate transparency and real contributions to sustainability.

“As sustainability and its growing collection of technical innovations become more and more cost-effective across global business models, ESG ratings will shift in their focus from being about risk avoidance to capturing opportunity. Consumers of the data will want to know where a business model is beginning to capture a new, lower-cost, more sustainable innovation, and therefore delivering better top and bottom-line performance to its owner,” says Timothy Nixon for The Economist.

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