Tesla Inc (NASDAQ:TSLA)’s exclusion from the S&P 500 ESG Index has irked Cathie Wood, the chief executive officer of ARK Investment Management and frequent Tesla cheerleader.
In a short tweet, Wood, who has largely supported Tesla throughout the recent tech sell-off in the US, described the decision by indices firm S&P Dow Jones Indices to eject the electric vehicle maker from the Environmental, Social & Governance (ESG) index as “ridiculous”.
However, Margaret Dorn, the North American head of ESG Indices, defended the decision.
“Tesla was ineligible for index inclusion due to its low S&P DJI ESG Score,3 which fell in the bottom 25% of its global GICS industry group peers. It joins Berkshire Hathaway, Johnson & Johnson (NYSE:JNJ) and Meta, which have once again met the index methodology’s chopping block,” Dorn said in a blog post.
“But, how can a company whose self-declared mission is to ‘accelerate the world’s transition to sustainable energy’ not make the cut in an ESG index?” she asked, rhetorically.
“There are many reasons,” Dorn asserted, before going on to list some of those reasons – although Elon Musk, the boss of Tesla, had his own ideas about the exclusion, saying “ESG is a scam”.
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.
— Elon Musk (@elonmusk) May 18, 2022
Dorn said that while Tesla’s ESG score had remained fairly stable compared to a year ago, its sector peers have improved, thus pushing it further down the ranks.
“A few of the factors contributing to its 2021 S&P DJI ESG Score were a decline in criteria level scores related to Tesla’s (lack of) low carbon strategy and codes of business conduct. In addition, 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, identified two separate events centred 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.”
In other words, there is more to ESG than just “E” – environmental.
“Both of these events had a negative impact on the company’s S&P DJI ESG Score at the criteria level, and subsequently its overall score. 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,” Dorn asserted.
Cathie Wood said the decision was “not worthy of any other response” other than her one-word assessment.
Talk about ridiculous. pic.twitter.com/RGNHEsFC9g
— Kyle Bagrie (@KBagrie) May 19, 2022
Tesla Inc (NASDAQ:TSLA) comprises around 9.5% of the Ark Innovation ETF (exchange-traded fund) so she is understandably irked by the decision by S&P Dow Jones Indices, which will prompt index-tracking funds to sell their Tesla stakes.
The Tesla share price, which has slumped from US$1,145.45 on 4 April to around US$709.81 now, has been under pressure, partly because Musk had to dump a pile of Tesla shares to raise cash for his proposed takeover of Twitter Inc (NYSE:TWTR).
The reason why Ark investors keep doubling down is because no one told them that the profitless companies they are buying are totally dependent upon cheap capital.
And the infinite valuation model is based upon 0% interest rates.
Cathie Wood herself doesn't understand it. pic.twitter.com/d8u7DHaQB4
— Mac10 (@SuburbanDrone) May 12, 2022
Tesla’s slump, in turn, has done no favours to the ARK Innovation ETF share price, which has more than halved in value this year.