In May, electric vehicle maker Tesla was removed from the S&P 500’s ESG index. In response, CEO Elon Musk tweeted that ESG is “a scam” that has been “armed by fake social justice warriors.”
Jim Watson | AFP | Getty Images
Tesla CEO Elon Musk may have misunderstood the importance of ESG (Environmental, Social and Governance) according to the CEO of Clarity AI, a tech company that specializes in providing software to assess sustainability.
In an interview with CNBC’s Squawk Box Europe last month, Rebeca Minguela spoke about the confusion over what ESG actually means.
“Many investors think it might just focus on the impact on climate,” she said. “Not just ‘many investors’ – even Elon Musk tweeted about it.”
In May, electric vehicle maker Tesla was removed from the S&P 500’s ESG index. In response, Musk tweeted that ESG is “a fraud” that has been “armed by fake social justice fighters.”
The same tweet also noted that ExxonMobil was “ranked among the top ten in the world for environmental, social and governance (ESG) by the S&P 500, while Tesla didn’t make the list!” The oil and gas supermajor is described as listed as one of the “Top 10 Constituents by Index Weight”.
Like its CEO, Tesla has weighed in on the increasingly charged ESG debate. According to its 2021 Impact Report: “Current ESG assessment methodologies are fundamentally flawed.
“Current environmental, social and governance (ESG) reporting does not measure the magnitude of the positive impact on the world,” she added. “Instead, it focuses on measuring the dollar value of risk/reward.”
“Individual investors – who entrust their money to ESG funds at major investment institutions – may not be aware that their money can be used to buy stocks in companies that are making climate change worse, not better.”
Read more about electric vehicles from CNBC Pro
Beyond the climate
During her interview with CNBC, Clarity AI’s Minguela argued that Musk’s reaction pointed to a broader issue affecting people’s views of what ESG actually stands for.
“Elon Musk might have thought that ESG measures climate impact,” she said. “And that’s why he was concerned about Tesla falling out of the ESG sustainability index and Exxon being in that index.”
“But that’s a good sign [of] … how Elon Musk doesn’t understand what ESG means … And he’s an incredibly smart person, right? So I think if that happens to him, it’ll happen to a lot of other investors.”
“That’s why it’s so important that they have tools and a better understanding of what ESG really means and what the different frameworks are trying to measure.”
Tesla had not responded to CNBC’s request for comment on Minguela’s comments prior to the release.
The definitions of what ESG actually means are broad and varied. While much attention is paid to the “environmental” aspect, both the social and governance strands are important.
The state-owned British Business Bank, for example, describes ESG as “an umbrella term for a company’s impact on the environment and society, and how robust and transparent its governance is in relation to corporate governance, executive pay, audits and internal controls and shareholder rights.”
green washing
Discussions about ESG and sustainability have generated buzz amid growing concerns about social issues and the environment.
Companies around the world are trying to do this Brush up on their sustainability credentials by announcing net-zero targets and plans to reduce the environmental footprint of their operations.
However, there is considerable skepticism in some quarters about many corporate sustainability claims, as specific details are often hard to come by and the deadlines for achieving these goals are sometimes decades away.
This often leads to accusations of greenwashing, a term used by environmental campaigning group Greenpeace UK to describe a “public relations tactic” used “to make a company or product appear green without significantly reducing its environmental impact”.