What is the reason why Tesla, Inc. was dropped from the S & P 500 ESG index?

Standard & Poor's updated its ESG index compilation method and removed Tesla, Inc., the global leader of new energy vehicles, from the latest S & P 500 ESG index, attracting the attention of investors around the world.

Highlights of the new methodology: adjust and expand the negative list and increase the frequency of reviews of corporate business practices and the United Nations Global Compact (UNQC).

Specifically, the compilation of the S & P ESG consists of two steps: 1) negative elimination: excluding some industries (thermal coal, tobacco, weapons) and companies with the lowest 5 per cent UNQC scores. 2) positive screening: according to the ranking P DJI ESG score, the worst 25% companies are removed from each industry in the parent index, and then the top 75% companies by market capitalization in each industry are selected according to the ranking. The CSA P DJI ESG scoring method is developed by Scandinavian P Global Corporate Sustainability Assessment (CSA). CSA questionnaires are sent to global companies every March. CSA evaluates the overall level of ESG through questionnaire feedback, media and stakeholders.

Tesla, Inc. was dropped from the S & P 500 ESG index for a number of reasons. The head of the ESG index said that Tesla, Inc. dropped to the bottom 25% due to lack of low-carbon development strategy and violation of the business code of conduct, so he was removed from the constituent stocks. Although Tesla, Inc. has played a role in promoting the development of green energy, the overall ESG score still lags behind the average of the same industry. For example, many deaths and poor working conditions of Tesla, Inc. 's car have a great negative impact on the overall ESG score.

The S & P 500 ESG index steadily outperformed the parent index. As of April 29, 2022, compared with the parent index S & P 500, the excess returns of the ESG-enhanced index reached 2.22%, 1.95%, 1.34% and 0.45% in the past one year, three years, five years and ten years, respectively.

The industry distribution of the S & P ESG index converges with that of the parent index. According to the new S & P 500 ESG Overview released on April 29, 2022, its industry distribution is very close to the parent index: only the information technology industry differs 3 per cent from the parent index, while the rest of the industry differs by less than 2 per cent.