Tesla, one of world’s solutions to the current petroleum-based transportation industry predicament that we face, has been dropped from the S&P 500 ESG Index.
Stemming from an alleged lack of a low-carbon strategy and issues associated with the code of conduct and potential discrimination claims, Tesla has been deemed a worse performer than Exxon Mobil, one of world’s largest publicly traded international oil and gas companies.
So, what happened?
The framework for ESG is designed to assess the operational impact of environmental, social and governance activities of a business, or in other words, the investor criteria to be met. According to S&P, Tesla did not met this standard. So, perhaps not so shocking.
This has highlighted two glaring issues:
1) Companies in the “sustainability” and “renewable” space can no longer think that their corporate strategy satisfies the criteria for an “ESG” strategy, and;
2) A deeper investigation into how we assess ESG performance needs to occur beyond a basic algorithm.
Sustainability solution-based companies must understand the need to have a greater focus on the “S” and “G” elements of ESG when it comes to running their business. Your solution may help a major societal issue from the “E” world, but this does not mean that you can offset poor performance with respects to managing your people, diversity rates, and the governance levels of your own operations and the communities in which you operate.
Conversely, ESG ratings and indexes also must re-evaluate how they assess the performance of a company. The least sustainable companies in the world (namely the extractives and energy industries) identified this risk 30 years ago before any other industry, and began to become more transparent in their disclosures of impact and performance in order to keep operating. Nonetheless, this does not necessarily make them better rated ESG companies when their core solutions are causing so much damage.
The SEC is correct in its desire to stop ESG funds from “greenwashing” investors and stakeholders with scores that perhaps do not capture the full story. A level of common sense and prudence needs to take place.
By Daniel Gribbin, VP Sustainability & ESG at Emex.
Manage health & safety, carbon transition and social capital imperatives, all in one place.