According to Bloomberg News, a benchmark ESG stock index was found to remove Tesla Inc, triggering a debate about which organizations do not and do pass muster with the investors that are socially aware.
More on the removal of Tesla from S&P Index
Tesla has become a $735 billion company on the back of the breakthrough EV engineering. The carbon footprint of Tesla is just a fraction of what its peers have. The company’s success in the market has pushed away most from the gas-powered vehicles.
The other ESG components, the social and governance risks, offer a pause to the investors. The Chief Executive Officer, Elon Musk, is not a conventional manager, prone to impulsive tweets, and the company prefers not to disclose the workforce or the labor conditions of the company.
The split on Wednesday became material when it was found that Tesla suffered expulsion from the ESG version of the S&P 500 Index. The response from Musk was that ESG is “a scam”. It had added to the already lousy day the company was facing when the stocks dropped by 6.8% amidst a broad selloff of the tech shares.
As per Eric Balchunas, the senior ETF analyst at Bloomberg Intelligence, it all implies the inconvenient fact that it is not possible to keep the baby without the bathwater.
An analyst at Bloomberg Intelligence revealed in a report that Tesla’s ESG status will remain the debate for any company, with many ESG labeled funds that are still holding the stocks. The largest ESG-focused ETF has approximately 1.8% of the assets invested in Tesla, as per data that Bloomberg has compiled.
The fund, BlackRock Inc’s $21.9 billion iShares ESG Aware MSCI USA ETF (ticker ESGU), tracks MSCI USA Extended ESG Focus Index, which still includes Tesla as its member. Balchunas and BI’s Shaheen Contractor has written on Wednesday that 8 of the 15 biggest US funds, including ESG in the portfolio filters, have prominent positions in Tesla.
S&P Dow Jones Indices that did away with Tesla from the S&P 500 ESG Index revealed that the company’s score on social, environmental, and governance standards continued to remain stable over the last year. Still, it slid down the ranks against the improvement of its peers globally.
Bloomberg News reports that the index provider expressed concerns related to the working conditions and the way Tesla handled an investigation related to the deaths and injuries related to driver assistance systems. An absence of a low carbon strategy and business conduct codes also acted against Musk’s company.
From a market point of view, the removal of Tesla from the S&P index will likely be minimal as there is only $11.7 billion that could track S&P ESG gauges as recent as that from 2020 end. In contrast, trillions of dollars usually track the leading S&P 500 gauge.
