What is the reason for Tesla being excluded from the S&P 500 ESG index?

Standard & Poor's has updated its ESG index construction method, and in the latest edition of the S&P 500 ESG index, it excluded the global new energy vehicle leader Tesla, attracting attention from global investors.

Highlights of the new construction method: adjusting and expanding the negative list, and increasing the frequency of reviewing company business conduct and United Nations Global Compact (UNQC).

Specifically, the construction of the S&P 500 ESG index includes two steps: 1) Negative screening: exclude certain industries (thermal coal, tobacco, weapons) and companies with UNQC scores in the worst 5%. 2) Positive selection: based on the S&P DJI ESG score, first exclude the worst 25% of companies from each industry of the parent index, then screen out the top 75% of companies by market cap ranking in each industry. The S&P DJI ESG scoring method is developed by S&P Global Corporate Sustainability Assessment (CSA), which sends out CSA questionnaires to global companies every March to evaluate the overall ESG level through questionnaire feedback, media, and stakeholder information.

Multiple reasons led to tesla being removed from the s&p 500 esg index. The head of the ESG index stated that Tesla's lack of a low-carbon development strategy and violation of business conduct norms resulted in a score drop of 25%, leading to its exclusion from the constituent stocks. Although Tesla has played a role in promoting green energy development, the overall ESG score still lags behind the industry average. For example, multiple fatal incidents involving Tesla cars and incidents of poor working conditions have had a significant negative impact on the overall ESG score.

The s&p 500 ESG index has consistently outperformed the benchmark index. As of April 29, 2022, relative to the s&p 500 index, the ESG-enhanced index has achieved excess return rates of 2.22%, 1.95%, 1.34%, and 0.45% over the past one, three, five, and ten years, respectively.

The industry distribution of the s&p 500 ESG index is converging with the benchmark index. According to the updated 'S&P 500 ESG Index Overview' released on April 29, 2022, the industry distribution of the ESG index is very close to that of the benchmark index: only the information technology sector differs by 3% from the benchmark index, while the differences in other sectors are within 2%.