Tesla is not as good as Musk’s “shooting” of the fuel car! What the hell is an ESG ranking that advertises environmental protection? -Environmental protection, electric vehicles, Tesla – Fast Technology (the media of Drive Home) – Technology changes the future

Musk “fired” again.

This time, the Silicon Valley Iron Man is not the SEC or the Twitter board of directors, but the S&P 500.

Recently, S&P Dow Jones Indices announced that it will remove Tesla from its ESG index, because Tesla has lagged behind its peers for a variety of reasons, including a lack of a low-carbon strategy, alleged racial discrimination, and working conditions at its Fremont, California factory. Egregious, mishandling of regulators’ investigations into their vehicle-related casualties.

Top 10 companies to be excluded from the S&P 500 ESG Index in 2022｜S&P

This directly “annoyed” Musk. He then posted on social media Twitter:“ESG is a hoax. It’s being shot at by guys who pretend to be social justice fighters. S&P ratings have lost their integrity. ExxonMobil is ranked in the top 10 global ESG 500 by the S&P 500, but Tesla doesn’t. To be on the list!”

In fact, Tesla has not been joining the S&P 500 ESG Index for a long time. One year ago, in May 2021, Tesla officially became a constituent of the S&P 500 ESG Index. However, Daniel Perrone, director and director of operations of the S&P 500 ESG index, once said that Tesla was selected for the ESG index not because of its performance in sustainable development, but more because of its market value.

It is understood that the selection criteria for S&P Dow Jones Indices ESG not only consider company scores, but also market value factors, with the goal of including companies with 75% of the circulating market capitalization in each group.

At the time, Tesla ranked just 22 points, fifth among five companies in the S&P 500’s auto and parts industry group. But because Tesla had a market value of more than $500 billion at the time and was a heavyweight in the S&P Dow Jones Index, it was successfully selected.

In the eyes of many people, Tesla has led the development of electric vehicles, accelerated energy transformation and energy conservation and emission reduction. Why was it kicked out of the ESG index? What’s the signal behind this?

What is ESG?

To answer these questions, we must first understand what ESG is? ESG in people’s mouths is actually the abbreviation of three English words:

Environment｜surroundingsincluding climate change, natural resources, pollution and environmental governance;

Social ｜societyincluding human capital, product responsibility, product quality;

Governance｜Governance, including internal corporate governance, corporate behavior and protection of shareholder interests, etc.

In a popular sense, ESG is an investment philosophy and an indicator of a company’s ability to operate sustainably.If traditional investment is more concerned with returns and risks, investment and decision-making revolve around these two dimensions, then ESG investment adds the dimension of ESG influence on this basis. Investors want to make an ESG impact while pursuing financial returns.

The investment philosophy of ESG can be traced back to the ethical investment of religious churches in the 1920s. The concept of ESG in the modern sense was formally proposed by the United Nations Global Compact in 2004.

In the past decade, ESG investment has developed rapidly in Europe and the United States and other countries. According to the statistics of the 2020 annual report released by the Global Sustainable Investment Alliance (GSIA), the asset management scale of global ESG investment has increased from US$13.26 trillion in early 2012 to US$35.30 trillion in early 2020, with a compound annual growth rate of 13.02 %, far exceeding the overall growth rate of the global asset management industry (6.01%).

From the perspective of regional distribution, the US market will account for 48% in 2020, surpassing the previously ranked European market and becoming the largest market for ESG investment. At the same time, the share of the Japanese market has increased rapidly, reaching 8% in 2020, ranking third.

The reason why the capital market pays so much attention to ESG is because many investors believe that ESG investment can bring excess returns. This allows them to earn risk-adjusted market returns while still investing in line with their values. However, the discussion on the excess return of ESG investment has been discussed by academia and market practitioners since the 1980s of last century, and ultimately failed to reach a unified conclusion.

At present, the number of ESG rating agencies in the world has exceeded 600. In addition to the S&P Dow Jones Indices mentioned above, well-known agencies include Morgan Stanley Capital International (MSCI), KLD Research and Analysis (KLD), Thomson Reuters (Thomson Reuters), Vigeo Eiris, etc., more and more investors invest through third-party ESG assessment results.

According to data from the S&P Dow Jones website, the S&P 500 ESG Index is tracked by at least 16 exchange-traded funds (ETFs). Dollar.

That’s part of the reason Musk is so angry.After Tesla was kicked out of the S&P ESG index, it could take a toll on Tesla’s stock price.At the same time, this also sends a signal to the outside world that Tesla has problems with ESG. Some investors worry that other rating agencies may follow suit and further downgrade Tesla’s ESG rating.

The love-hate relationship between Tesla and ESG

In fact, before this, Musk has publicly criticized ESG ratings many times. In early April this year, Musk bluntly stated that “corporate ESG ratings are the incarnation of the devil” and said that the ESG investment principles “should be deleted if they are not revised.” In late April, Musk said that “ESG ratings are meaningless.” And in Tesla’s 2021 Impact Report released earlier this month,The company criticized current ESG assessment methods on the market as ‘fundamentally flawed’and said that ESG needs to improve its ability to measure and assess what is really happening.

This is mainly because Tesla doesn’t score high on multiple ESG ratings. For example, among the 41 auto industry companies rated by Morgan Stanley Capital International (MSCI), Tesla is only rated as “average”, and it ranks 8,255th out of 14,735 in the world. In a November 2021 rating report released by Sustainalytics, Tesla has an ESG score of 28.5, which is “moderate risk.”

Contrary to what many people think, Tesla has led the development of electric vehicles and clean energy, making a major contribution to sustainable development. The financial report shows that Tesla will earn $1.465 billion from carbon trading sales in 2021. Why didn’t Tesla get a better ESG score?

S&P Dow Jones ESG Index Scores｜S&P Dow Jones

This starts with the ESG scoring criteria. From the definition of the Sustainable Accounting Standards Board (SASB), Tesla’s substantive ESG issues include product quality and safety, labor health and safety, product design and life cycle management, raw material sources and efficiency, and energy management. in summary,Tesla’s E (environment) performance is good, but its S (social) and G (governance) performance is relatively under-performing.

Compared to its environmental performance, Tesla’s biggest problem is corporate governanceFor example, Musk was recently “targeted” by the US Securities and Exchange Commission (SEC) again because of his delay in disclosing his large stake in Twitter; previously, the SolarCity merger, Musk’s “funding ready” tweet, board independence and CEO compensation, are considered to have many governance issues.

In addition, Tesla has also been repeatedly criticized in terms of social issues, including delivery delays, battery design flaws, Model S collisions and fires, solar panel fires, and safety concerns about the automated driving system.

However, while society is relatively consistent in its ESG investment philosophy,butnot at allformUniform scoring criteria.For example, rating agencies in different countries and regions often have completely different understandings of ESG. At the same time, the value orientation of the designers of the evaluation agency will also affect the ESG score. This has also led to considerable differences in the rating results of different rating agencies for the ESG rating of the same company.

Taking Tesla as an example, MSCI’s rating emphasizes the environmental impact of products, so Tesla is rated A; JUSTCapital emphasizes labor-management relations, but is dissatisfied with Tesla’s frequent employee safety concerns, The whistleblower’s employee retaliation and other issues gave it a minimum rating of 10%; FTSE’s FTSE rating attaches great importance to companies’ environmental disclosure, human resources policies and product quality, and also believes that Tesla must improve in these areas, so it is given a rating of 10%. The ratings are not good either.

Is ESG a scam?

Is Musk’s “bombing” ESG reasonable this time?

Before making a choice, let’s take a look at Musk’s reasons for criticizing ESG. In the Tesla Impact Report, Musk said, “The current ESG report ignores the real positive impact it should have on the world, and is too focused on measuring the value of dollar risk/reward.”

At the same time, he also gave an example when evaluating the ESG of the automotive industry, it is common sense that the larger the proportion of tram sales or the greater the number, the higher the score should be.However the reality isAutomakers that are still mass-producing gas-guzzling automakers can significantly improve their ESG scores by only slightly reducing carbon emissions in the manufacturing process. Some oil and gas companies, such as Exxon Mobil, have scored higher than Tesla under this scoring system.

A careful analysis of Musk’s remarks shows that he has some misunderstandings about ESG. Taking the S&P 500 ESG Index as an example, the relevant selection is based on industry groups.Tesla is in the auto and parts industry group, and its competitors are General Motors, Aptiv, BorgWarner, and Ford. In contrast, Exxon Mobil is listed in the energy industry, and there is no comparison between the two.

At the same time, it is generally believed in the industry that Musk’s words do have some truth, but it is somewhat overgeneralized to deny the ESG rating altogether. SynTao Green Finance is an expert institution engaged in ESG rating in China. Its chairman Guo Peiyuan said that ESG rating is not perfect, but it is indispensable. ESG information disclosure and ESG rating are important infrastructure for ESG investment development.

At the same time, he gave three reasons, one of which is that ESG ratings emphasize comprehensiveness.Evaluation indicators need to cover all aspects, but the problem is that each indicator can be assigned a small weight. This is an important reason for Tesla’s dissatisfaction: even if Tesla far exceeds other companies in terms of carbon emissions, if other indicators are not good enough, the overall score cannot be ranked first.

Second, another common feature of ESG rating methodologies is universality, that is, the evaluation metrics take into account the situation of most companies in the industry.Tesla is classified in the auto industry, naturally hereIncluding traditional car companies and new car manufacturers, the evaluation indicators should take into account both, and traditional car companies account for more, so it can be considered that the indicator setting will be more friendly to traditional car companies.

At the same time, universality also brings another problem, that is, companies that take into account the various performances of good, medium, and poor in the industry cannot only take care of top students, nor can they only take care of poor students. In the real world, in an average sense, whether in the early days of socially responsible investing (SRI) or now ESG,The focus of ESG evaluation of listed companies is indeed to control the negative first, and then look at the positive (social value). That’s what Tesla is complaining about.

If you put aside the surface anger and dissatisfaction, Musk’s remarks about ESG ratings are more like a “very serious”,call for the latterFocus more on the positive impact your company has on the world than on reducing the negative.

Compared to the two decades of ESG investment in Europe and the United States, China is still in its infancy. At present, according to data from the China Securities Regulatory Commission, in 2021, nearly 90% of listed companies will hold performance briefings, and 1/4 of the companies will disclose ESG or social responsibility reports. In the automotive industry, Xiaopeng, Ideal, Dongfeng, GAC, Geely, etc. have released ESG reports.

Still, ESG investing could profoundly change China. Recently, the concept of ESG in China has begun to take off, and the important background is “carbon neutrality”. Zhu Min, Dean of the National Institute of Financial Research at Tsinghua University, once said that carbon neutrality is actually a fundamentally subversive reconstruction of China’s future economic development model, as well as the entire economic structure, the entire economy from high carbon to low carbon, energy revolution, economic Innovation reshapes the entire manufacturing industry.

ESG investment has made many business organizations start to think about investing to achieve some social goals beyond the benefits while creating business value. However, from the current point of view, the society still lacks a consensus on the future development direction of ESG.ESG investment should not be just a value or political correctness, but a precise calibration of the scoring system to better motivate business companies to develop sustainably.

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