Tesla was thrown out of the S&P 500 ESG index. Elon Musk sounds upset.

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Tesla

no longer qualifies for inclusion in the S&P 500 ESG Index. It is a conversation that is likely to surprise investors, with the potential for a modest impact on the share price.

Tesla

(ticker: TSLA), a company that CEO Elon Musk says he founded to put the world on the road to a future of sustainable energy, does not have a comprehensive low-carbon strategy, according to the S&P Dow Jones Indices.

“Some of the factors contributing to 2021 [ESG] The score was a decline in criteria level scores related to Tesla’s (lack of) low carbon strategy and guidelines for business behavior, “wrote Maggie Dorn, senior director and head of ESG Indices, North America, at S&P Dow Jones Indices, in a blog post.

Tesla is of course responsible for moving the entire automotive industry towards electric vehicles.

Ford Motor

(F) and

General motors

(GM) are two car manufacturers that spend billions on electric cars. Proportion of both is in

SPDR S&P 500 ESG ETF
(EFIV).

Read more: Tesla’s share price target falls as earnings estimates rise

Driving an electric car does not eliminate all carbon emissions because electricity can be generated by burning natural gas or coal. But the United States now generates about 40% of its electricity from nuclear power plants and renewable sources, and that percentage goes up over time.

There were also other reasons for exclusion. “A media and stakeholder analysis, a process that seeks to identify a company’s current and potential future exposure to risks arising from its involvement in a controversial incident, identified two separate incidents centered around allegations of racial discrimination and poor working conditions at Tesla’s Fremont plant. “as well as the handling of the NHTSA investigation after several deaths and injuries were linked to the autopilot vehicles,” Dorn wrote.

Tesla would certainly take exception to the safety claim. The company produces quarterly reports indicating that Tesla compares favorably with other vehicles on some safety measurements. It did not immediately respond to a request for comment.

But Musk does not seem satisfied, and tweets that S&P Global Ratings “has lost its integrity” and describes environmental, social and management investments as a scam.

“For any element of an ESG score, whether it is E, S or G, disclosure is extremely important,” said Ray McConville, an S&P spokesman. Barrons by e-mail. “If there is not a lot of information available, whether it is publicly available information or information provided in our Corporate Sustainability Assessment survey, then it will negatively affect a score. So for Tesla and others, the problem is partly a lack of disclosure.”

One thing that can help Tesla is PR. Tesla does not have an active PR effort.

Tesla “needs to invest in PR to improve the safety brand value, which is becoming increasingly important in the minds of electric car customers,” said Tesla.

Future Fund Active ETF
(FFND) co-founder Gary Black. “Teslas are the safest cars in the world, but electric car consumers do not know.”

Exclusion from an index can have an impact on a stock because inclusion creates demand. But for Tesla, the ESG exclusion looks small.

Read more: Tesla is the king of electric cars. Here are the top 10 candidates for the crown.

Approximately $ 65 billion in cash is indexed to or benchmarked against the S&P ESG index. There is a lot, but there is relatively little in the asset management world. The comparable number for

S&P 500
—Tesla is a component – is more than 13 trillion dollars.

The Tesla share fell by approx. 5.5% during the dinner trade, but the index news is probably not the reason. The market is weaker: S&P 500 and

Dow Jones Industrial Average
were down 3% and 2.5%, respectively. And Piper Sandler analyst Alexander Potter cut the stock price target to $ 1,035 from $ 1,260.

Write to Al Root at allen.root@dowjones.com