In May, electric-vehicle maker Tesla was faraway from the S&P 500’s ESG Index. In response, CEO Elon Musk tweeted that ESG was “a scam” that had been “been weaponized by phony social justice warriors.”
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Tesla chief Elon Musk might have misunderstood the which means behind ESG (environmental, social, and governance), in accordance with the CEO of Clarity AI, a tech agency specializing within the provision of software program to evaluate sustainability.
In an interview final month with CNBC’s “Squawk Box Europe,” Rebeca Minguela spoke of the confusion surrounding what ESG really means.
“Many investors believe it might be only focused on climate impact,” she mentioned. “Not just ‘many investors’ — even Elon Musk tweeted about it.”
In May, electric-vehicle maker Tesla was faraway from the S&P 500’s ESG Index. In response, Musk tweeted that ESG was “a scam” that had “been weaponized by phony social justice warriors.”
The identical tweet additionally famous that ExxonMobil was “rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn’t make the list!” The oil and fuel supermajor is listed as one of many “Top 10 Constituents by Index Weight.”
Like its CEO, Tesla has additionally weighed in on the more and more charged debate on ESG. In its Impact Report for 2021, it mentioned: “Current ESG evaluation methodologies are fundamentally flawed. To achieve acutely-needed change, ESG needs to evolve to measure real-world Impact.”
“Current environmental, social and governance (ESG) reporting does not measure the scope of positive impact on the world,” it added. “Instead, it focuses on measuring the dollar value of risk / return.”
“Individual investors — who entrust their money to ESG funds of large investment institutions — are perhaps unaware that their money can be used to buy shares of companies that make climate change worse, not better.”
Read extra about electrical autos from CNBC Pro
Beyond local weather
During her interview with CNBC, Clarity AI’s Minguela argued that Musk’s response pointed to a wider difficulty round individuals’s views of what ESG really stands for.
“Elon Musk might have thought that ESG was measuring climate impact,” she mentioned. “And that’s why he was concerned about Tesla dropping off the ESG sustainability index and Exxon being in that index.”
“But that’s a good sign [of] … how Elon Musk is not understanding what ESG means … And he’s an incredibly smart person, right? So I guess that, if that happens to him, that happens to many other investors.”
“So that is why it’s so important that they have tools and a better understanding of what ESG really means and what the different frameworks are trying to measure.”
Tesla had not replied to CNBC’s request for touch upon Minguela’s remarks earlier than publication.
Definitions of what ESG really means are broad and assorted. While a nice deal of consideration is paid to the “environmental” facet, each the social and governance strands are necessary too.
The government-owned British Business Bank, for instance, describes ESG as being a “collective term for a business’s impact on the environment and society as well as how robust and transparent its governance is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.”
Greenwashing
Discussions surrounding ESG and sustainability have attracted publicity in mild of mounting issues over social points and the setting.
Corporations around the globe are trying to burnish their sustainability credentials by saying net-zero targets and plans to scale back the environmental footprint of their operations.
In some quarters, nonetheless, there is vital skepticism about most of the sustainability-related claims companies make, provided that concrete particulars are sometimes exhausting to come back by and the dates for attaining these targets are generally a long time away.
That usually results in accusations of greenwashing, a time period environmental marketing campaign group Greenpeace UK has known as a “PR tactic” used “to make a company or product appear environmentally friendly without meaningfully reducing its environmental impact.”
