Tesla (NASDAQ: TSLA) shares fell 6.8% on Wednesday, making CEO, and also the world’s wealthiest person, Elon Musk, poorer by about US$12.4 billion. The dip follows S&P’s removal of Tesla from the S&P 500 Environmental, Social, and Corporate Governance (ESG) Index.
The electric vehicle maker was removed from the index early in May as part of a regular rebalancing, but no reason was provided or details expounded until Tuesday, when Margaret Dorn, head of S&P’s North American ESG Indices, published a blog post with the title “The (Re)Balancing Act of the S&P 500 ESG Index.”
The index assesses companies’ overall environmental impact, sustainability efforts, as well as corporate culture. And according to Dorn, “the changes of the 2022 rebalance reflect the delicate balancing act of providing for broad-based market exposure but with meaningful and measurable sustainability-focused enhancements.”
An angry Musk retorted by tweeting that “ESG is a scam.”
At first glance, it is curious to see the US top electric vehicle maker off the list while oil giant Exxon Mobil is in the top ten. But Dorn explained that sustainability is not the sole basis of the index.
“While Tesla may be playing its part in taking fuel-powered cars off the road, it has fallen behind its peers when examined through a wider ESG lens,” she wrote.
In the short explanation, Dorn wrote that Tesla’s score actually had an over increase in average and has remained stable year on year, but it was pushed down in the rankings relative to the scores of its peers. The fall from the rankings was due to Tesla’s lack of low carbon strategy and its codes of business conduct.
The index involves a media and stakeholder analysis, “a process that seeks to identify a company’s current and potential future exposure to risks stemming from its involvement in a controversial incident.”
The analysis then pointed to “two separate events centered around claims of racial discrimination and poor working conditions at Tesla’s Fremont factory, as well as its handling of the NHTSA investigation after multiple deaths and injuries were linked to its autopilot vehicles.”
Musk did not refer to these incidents as he proceeded to troll the index on Twitter, alluding to the incident as “a clear case of wacktivism.”
It’s unclear if the political remark that followed contributed to the dip in Tesla’s share value.
According to Forbes, Musk’s net worth — an estimated US$218.1 billion — has fallen by US$74.5 billion since April 13, or the day before his Twitter takeover was made public.
Information for this briefing was found via S&P, Twitter and Tesla. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.