S&P 500 ESG Index Drops Tesla Due to Lack of Low-Carbon Strategy and More; Elon Musk Reacts Calling Metrics a 'Scam'

The widely followed S&P 500 ESG Index has removed electric carmaker Tesla, Inc. due to its codes of business conduct and a lack of low-carbon strategy. They cited in their announcement the continued racism and poor working conditions at Tesla's factory in Fremont, California.

But it also added the soon-to-be-Musk-controlled Twitter, Inc. and oil refiner Philips 66 while dropping Delta Air Lines and Chevron Corp. Due to this, there has been a wider debate on the metrics S&P 500 uses to judge performances of corporations based on their environmental, social, and governance (ESG) issues.

(Photo : JOHN THYS/AFP via Getty Images)
The logo marks the showroom and service center for the US automotive and energy company Tesla in Amsterdam on October 23, 2019.

Tesla's Environmental Violations

Electric carmaker Tesla is one of the most valuable auto companies that pioneered electric vehicles (EV) and promoted the use of batteries for electric grids and solar power systems. However, the S&P 500 ESG Index has cited its lack of published details of its low-carbon strategy or its code of business conduct.

Margaret Dorn, S&P Dow Jones Indices' head of ESG indices for North America, told Reuters that other issues and lack of disclosures relative to its industry peers have raised concerns for investors even though Tesla's products help cut planet-warming emissions.

"You can't just take a company's mission statement at face value, you have to look at their practices across all those key dimensions," the news outlet quoted Dorn.

Furthermore, Tesla has environmental issues despite its mission to accelerate the transition of the world to sustainable energy. In February 2022, it settled a complaint from the Environmental Protection Agency due to years of violations in the Clean Air Act. Musk's electric car company has ranked second in 2021's Toxic 100 Air Polluters Index.

Tesla also disclosed in its first-quarter filing that it was investigated for the way they handle waste in California. It also had to pay a fine in Germany because it failed to meet obligations in spent battery in the country.

ALSO READ: Elon Musk Announces Self-Driving Robotaxi With Futuristic Look Again 2 Years After Missing the Target Date

Musk Calls ESG Metrics A Scam and "Devil's Incarnate"

Although Tesla has not immediately responded, it previously called the ESG metrics "fundamentally flawed." Meanwhile, Elon Musk tweeted and called ESG "a scam" adding that it might be weaponized by phony social justice warriors because Exxon has secured the tenth rank, but Tesla did not even make the list. He also called it the "Devil's incarnate" in an earlier tweet.

A Tesla company impact report in 2021 mentioned that the current ESG reporting does not measure the scope of positive impact on the world. Rather, it measures the dollar value of risk or returns and that large investment institutions are perhaps unaware that their money could be used to buy companies that make climate change worse.

The electric car company contended that even if other automakers have higher ESG without making an effort to reduce their greenhouse gas emissions and continue to produce traditional internal combustion engine cars.