Tesla Removed From S&P 500 ESG Index, Prompting Musk Fury

S&P Dow Jones Indices has removed electric carmaker Tesla Inc from its widely-followed S&P 500 ESG Index, citing issues, including racial discrimination claims and crashes linked to its autopilot vehicles, a move that prompted harsh tweets from Tesla CEO Elon Musk on Wednesday.

The back-and-forth underscores the widening debate about the metrics used to judge corporate performance on environmental, social and governance (ESG) issues, a growing area of investing.

Other contributing factors to the changes, effective May 2, included Tesla's lack of published details related to its low carbon strategy or business conduct codes, said Margaret Dorn, S&P Dow Jones Indices' head of ESG indices for North America, in an interview.

Even though Tesla is contributing to reducing emissions with its electric cars, Dorn said, its other issues and lack of disclosures relative to industry peers should raise concerns for investors looking to judge the company across environmental, social and governance (ESG) criteria.

"You can't just take a company's mission statement at face value, you have to look at their practices across all those key dimensions," she said.

Tesla representatives did not immediately respond to questions. But after the index changes, Tesla CEO Elon Musk tweeted https://twitter.com/elonmusk/status/1526958110023245829 on Wednesday that "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."

Asked about the tweet, a representative for the index provider said Musk may have been referring to a list on a company blog post https://www.indexologyblog.com/2022/05/17/the-rebalancing-act-of-the-sp-500-esg-index of the largest ten constituents by market cap of the S&P 500 ESG Index after the removal of Tesla and others. The list is "not a ranking of best companies by ESG score," the representative said.

Exxon now accounts for 1.443% of the weight of the index. Apple Inc was the largest at 9.657%.

GROWING CONCERNS

Investors concerned about issues like diversity and climate change have poured billions of dollars into funds using ESG criteria to pick stocks, prompting debate about how effectively the funds promote change or whether they push companies too much on issues that should be settled by government policy.

S&P Dow Jones Indices is majority-owned by S&P Global Inc.

The removal of Tesla was among a group of changes made to the S&P 500 ESG Index dating from April 22, according to an announcement. Among the additions to the index at the same time was Twitter Inc, the social media platform Musk has under agreement to purchase.

Dorn and others did not immediately describe the reasons Twitter was added.

Last year, the National Highway Traffic Safety Administration (NHTSA) opened a formal safety probe into Tesla Inc's driver assistance system Autopilot after a series of crashes involving Tesla models and emergency vehicles. [nL4N2R92KC]

In February, a California state agency sued Tesla over allegations by Black workers that the company tolerated racial discrimination at an assembly plant, adding to claims made in several other lawsuits.

A shareholder proposal calling on Tesla to disclose detailed data on its diversity and inclusion efforts last year won majority backing.