Elon Musk called a prominent index of socially responsible companies “fraud” on Wednesday after automakers dropped Tesla for how they handled racist charges at their California factories.
The S & P 500 ESG Index is a list of companies that meet specific environmental, social and governance standards and removed Tesla last month.However, the decision to exclude the world’s largest electric car maker from clubs that include oil producers like ExxonMobil was decided by S & P Global, which manages the index. explanation this week.
S & P quoted claims of racism and poor working conditions at Tesla’s factory in Fremont, California. California The state agency that filed the proceedings in which Tesla is in dispute. S & P said that the decision was that multiple casualties were in the company Driver assistance system known as autopilot..
“Tesla may be responsible for removing fuel-powered vehicles from the road, but when examined with wider ESG lenses, it lags behind its peers,” S & P’s North American ESG said. Margaret Dawn, the head of the index, explained the company.
Tesla stock was the fourth most important weight in the index before it was removed, after Apple, Microsoft and Amazon. The index tracking fund owned Tesla shares when it joined the index in May 2021 and was obliged to sell them when it was launched.
ExxonMobil is the ninth-highest-weight stock in the index, fueling an explosion from Mr. Musk. “Exxon is ranked in the top 10 in the world by S & P 500 in terms of environment, society and governance (ESG), but Tesla wasn’t on the list!” He wrote on Twitter. “ESG is a scam. It was armed by a fake social justice warrior.”
S & P did not immediately respond to requests for comment on why Exxon created the list and Tesla did not.
Tesla has previously faced criticism from investors for disclosing little information about the impact of manufacturing and labor practices.
“Eron has established a brand for himself and the company as a whole about the importance of environmental sustainability,” said Kristin Hull, founder and chief executive officer of Nia Impact Capital, a fund in Oakland, California. We are investing in companies that have a positive impact on society. Still, Dr. Hull added that Tesla has been stingy on information about its water use and how to procure the materials used for batteries.
“You can’t file a racial fair proceeding and consider it the top name of an ESG,” she added.
Passive index funds that collectively manage about one-third of all assets invested in the stock market need to match the index that tracks the portfolio. Being included in or removed from the index can affect a company’s stock price.For example, General Electric’s stock fell 3% shortly thereafter. Was announced In mid-2018, the company, a former member of the Dow Jones Industrial Average, was removed from the index.
However, Tesla’s share price has fallen by more than 30% since the end of March, most likely as a result of concerns over Mr. Musk’s purchase offer. twitter Investors’ views on technology stocks have changed dramatically.
As of the end of December 2020, S & P reported that it had $ 65 billion in assets invested in the fund associated with the index. This is the latest number. This is much less than the $ 13 trillion in the fund associated with the more widely followed S & P 500 Index, of which Tesla continues to be a member. That $ 65 billion is small compared to Tesla’s overall market value of $ 750 billion. And only some of those ESG fund holdings are in Tesla.
In addition, of the $ 65 billion associated with ESG indexes, only $ 11 billion of that money will be invested in the passive index fund needed to sell Tesla’s stock. The rest of the funds are in the fund, which is the performance benchmark for the S & P500ESG index. Many of these funds are actively managed by portfolio managers. These funds do not need to sell Tesla’s holdings, but they may sell them to ensure that investors do not deviate significantly from the index they are comparing.
John Hale, who directs sustainability research at Morningstar, a mutual fund tracking company, said: “It’s clear that the company’s products are environmentally beneficial, but Tesla is now a big company, affecting its employees and customers. These issues are relevant to ESG investors.”
Several other prominent companies were also removed from the index in April when S & P determined that it no longer met its membership criteria. They included Chevron, Delta Air Lines, The Home Depot, and News Corp.
Even if exit does not affect the value of a company’s stock, it can affect the behavior of the company. “Elon Musk and Tesla may be exceptions,” Hale said. “But on the other hand, few companies want ESG delays in the current environment.”