Is it unreasonable for Tesla to be removed from the S&P 500 ESG index? First, understand the compilation method of the ESG index.
On May 18th, the S&P 500 index removed the electric car manufacturer Tesla from its ESG (environmental, social, and corporate governance) index, citing that $Tesla (TSLA.US)$ had a low ESG rating, which was insufficient for inclusion (as shown in the figure).
Exclusion list of S&P 500 ESG index. Image Source: S&P Dow Jones Indices LLC.
The S&P 500 ESG index is a "broad market value-weighted index designed to measure the performance of securities that meet sustainable development standards, while maintaining similar overall industry group weights as the S&P 500 index." As a leader in electric vehicles and energy companies, Tesla's inclusion in the S&P 500 ESG index aligns with market expectations.
The U.S. Environmental Protection Agency's assessment of the fuel economy shows that, even if the electricity used by electric cars comes from power plants emitting large amounts of carbon dioxide, from the perspective of energy efficiency, electric cars still contribute far more to the environment than rbob gasoline cars. Generally speaking, only 14%-30% of the energy in rbob gasoline cars' power systems can be converted into power, whereas electric cars have a much higher level of energy utilization efficiency.
Upon learning that tesla was removed from the esg index, Musk tweeted: "Even Exxon (Exxon Mobil, a global oil and natural gas giant) makes it to the top ten in the Environmental, Social, and Governance (ESG) global rankings, while Tesla isn't even on the list!" $Exxon Mobil (XOM.US)$ (Exxon Mobil, a global oil and natural gas giant) ranks in the top ten globally for Environmental, Social, and Governance (ESG) standards, while Tesla didn't even make the cut!
Understanding the decision made by S&P requires knowledge of the methodology used for this index.
Construction of the s&p 500 esg index. Image source: S&P Dow Jones Indices LLC.
Adjustments to the s&p 500 esg index are made after the close of trading on the last working day in April each year. It ranks companies from high to low according to S&P ESG scores, aiming for the market cap of the selected companies to reach 75% of each GICS industry group's market cap in the s&p 500 broad-based index.
Step one: Exclude businesses involved in tobacco or controversial weapon companies, or companies with low UNGC scores.
Step two: Eliminate companies with S&P ESG scores ranking in the lowest 25% globally within GICS industry groups.
Step 3: In the s&p 500 index, rank the remaining companies in each GICS industry group according to the s&p esg score.
Step 4: Starting from the company with the highest s&p esg score, select companies based on the score, aiming for 75% of the market cap of the GICS industry group.
Step 5: Weight companies based on their market cap.
(Source: S&P Global)
Weighting varies by industry group. For example, medical effectiveness, product quality, and recall management are key factors for the pharmaceutical industry; while for the mining and minerals industry, factors considered include mineral waste management, water-related risks, and biodiversity.
North American ESG Index Director Margaret Dorn stated that Tesla lacks a low-carbon development strategy, violates business conduct guidelines, and therefore ranks in the bottom 25% and is removed from the constituents. Despite Tesla's electric vehicles reducing greenhouse gas emissions, its overall ESG score lags behind.
2021 Tesla Dow Jones Index ESG Score. Image Source: S&P Dow Jones Indices LLC.
Even though Tesla's market cap far exceeds eligible companies in the same group, its ESG score ranks last.
In addition, ESG includes not only the environment, but also social and corporate governance. Several safety incidents and instances of racial discrimination have further impacted Tesla's ESG rating.
According to data from Tesla Deaths official website, from April 2, 2013, to May 11, 2022, there have been 219 fatal accidents involving Tesla vehicles worldwide, resulting in the death of 261 individuals.
In October 2021, a black elevator operator at Tesla's Fremont factory in California experienced persistent racial discrimination, with his complaints being ignored by the company. As a result, a San Francisco jury ruled for Tesla to pay $15 million. Additionally, hundreds of employees complained that black workers faced discrimination in compensation, job assignments, and promotions, leading to a hostile work environment.
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星空探索 : Then this is the trash.