Why Tesla was dropped from the S&P 500’s ESG index

The S&P 500 launches electric vehicle maker Tesla from its ESG index as part of an annual update to the list. Meanwhile, Apple, Microsoft, Amazon and even the multinational oil and gas company Exxon Mobil were still on the list.

The S&P 500 ESG uses environmental, social and management data to rank and effectively recommend companies to investors. Its criteria include hundreds of company data points that relate to the way businesses affect the planet and relate to stakeholders outside of shareholders – including customers, employees, suppliers, partners and neighbors.

The changes to the index took effect on May 2, and a spokesman for the index explained why they were made in blog post posted on wednesday.

It says Tesla’s “lack of a low-carbon strategy” and “codes of business conduct”, along with racism and poor working conditions reported at Tesla’s Fremont plant in California, have affected the outcome. Tesla’s work with an investigation by the National Highway Traffic Safety Administration also weighed heavily on the result.

While Tesla’s stated mission is to accelerate the world’s transition to sustainable energy, in February this year it settled with the Environmental Protection Agency to track its own emissions after years of violations of the Clean Air and Neglect Act. Tesla ranked 22nd compared to last year Toxic 100 index of air pollutants, compiled annually by the U-Mass Amherst Political Economy Research Institute – worse than Exxon Mobil, which ranked 26th. (The index uses data from 2019, the most recent available.)

At Tesla filing for the first quarter the company also revealed that it was under investigation for waste management in the state of california and that it had to pay a fine in germany for failing to meet its obligations to “return” to the country on depleted batteries.

Meanwhile, the California Department of Fair Employment and Housing has filed a lawsuit against Tesla for harassment and discrimination against blacks at the Fremont car plant. The agency said it had found evidence that Tesla routinely kept black workers at a low level in the company, gave them more difficult physical and dangerous tasks and retaliated when they complained of racist insults.

Last year, the National Labor Council said Tesla had also been involved in unfair labor practices.

“Although Tesla may play a role in removing fuel-powered cars from the road, it lags behind its peers when viewed through a wider ESG lens,” the S&P spokesman wrote.

Tesla CEO Elon Musk complained about the index on Wednesday morning, where he boasted more than 90 million followers, saying S&P Global Ratings had “lost its integrity.”

In an earlier tweet, Musk wrote, “I’m becoming increasingly convinced that the corporate ESG is the incarnation of the devil.”

In the subsequent report on the impact of the company, Tesla wrote:

“Current Environmental, Social and Governance (ESG) reporting does not measure the extent of the positive impact on the world. Instead, it focuses on measuring the dollar value of risk / return. Individual investors – who entrust their money to ESG funds with large investment institutions – may not be aware that their money can be used to buy shares in companies that aggravate climate change rather than improve it.

In this report, Tesla argues that other carmakers could achieve higher ESG ratings even if they barely reduce their greenhouse gas emissions and continue to produce vehicles with internal combustion engines.

Shares of Tesla fell more than 6% on Wednesday amid a wide market sell-off. The company’s shares fell more than 30% this year.