In May, the electric car manufacturer Tesla was removed from the S & P 500’s ESG index. In response, CEO Elon Musk tweeted that the ESG was “a scam” that had become “a weapon of false social justice fighters.”
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Tesla CEO Elon Musk may have misunderstood the meaning behind ESG (Environment, Social and Management), according to the CEO of Clarity AI, a technology company specializing in the delivery of software to assess sustainability.
In an interview last month with CNBC̵[ads1]7;s “Squawk Box Europe”, Rebeca Minguela talked about the confusion surrounding what ESG really means.
“Many investors think it may be just focused on climate change,” she said. “Not just ‘many investors’ – even Elon Musk tweeted about it.”
In May, the electric car manufacturer Tesla was removed from the S & P 500’s ESG index. In response, Musk tweeted that the ESG was “a scam” that had “become the weapon of false social justice fighters.”
The same tweet also noted that ExxonMobil was “rated the top ten in the world for environment, social and governance (ESG) by the S&P 500, while Tesla did not make the list!” The oil and gas super major is listed as one of the “Top 10 components by index weight.”
Like its CEO, Tesla has also weighed in on the increasingly heated debate over the ESG. In its Impact Report for 2021, it stated: “The current ESG evaluation methodology is fundamentally wrong. In order to achieve the urgently needed change, the ESG must be developed to measure the impact in the real world.”
“Current environmental, social and governance reporting (ESG) does not measure the extent of a positive impact on the world,” it added. “Instead, it focuses on measuring the dollar value of risk / return.”
“Individual investors – who hand over their money to ESG funds to large investment institutions – may not be aware that their money can be used to buy shares in companies that make climate change worse, not better.”
During her interview with CNBC, Clarity AI’s Minguela argued that Musk’s reaction pointed to a broader issue around people’s views of what ESG actually stands for.
“Elon Musk may have thought that the ESG measured climate impact,” she said. “And that’s why he was worried that Tesla would drop the ESG Sustainability Index and that Exxon was in that index.”
“But that’s a good sign [of] … How Elon Musk does not understand what ESG means… And he is an incredibly smart person, right? So I guess if it happens to him, it will happen to a lot of other investors. ”
“So that’s why it’s so important that they have the 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 publication.
Definitions of what ESG actually means are broad and varied. While much attention is paid to the “environmental” aspect, both the social and managerial threads are also important.
The state-owned British Business Bank, for example, describes the ESG as a “collective term for a company’s impact on the environment and society, as well as how robust and transparent the governance is in terms of corporate governance, executive pay, audits, internal controls and shareholder rights.”
Discussions about ESG and sustainability have aroused publicity in light of growing concerns about social issues and the environment.
Companies around the world are trying to polish their sustainability credentials by announcing net-zero goals and plans to reduce the environmental footprint of their business.
In some circles, however, there is considerable skepticism about many of the sustainability-related claims companies make, given that concrete details are often difficult to come by and the dates for achieving these goals are sometimes decades away.
This often leads to accusations of greenwashing, a term that environmental campaign group Greenpeace UK has called a “PR tactic” used “to make a company or product appear environmentally friendly without meaningfully reducing its environmental impact.”