I never intended it, but Elon Musk has taken over from Donald Trump as the most talked-about individual in this blog. He is a never-ending source of scandal, sound-bites and gob-smacking hyperbole.
His latest outburst is over the iniquities of the ESG (environment, social and governance) ratings system. Like many a rant of Donald Trump, there is a small grain of truth hidden somewhere under the layers of spleen and excess.
Musk's company Tesla, already under si,gnificant market pressure (its share price has falled 43% in the last montha and a half), has been dropped from the S&P 500 ESG Index, mainly due to racial discrimination and poor working conditions in its factories, its handling of an investigation into deaths and injuries from Tesla autopilot vehicles, and, ironically, its lack of a low-carbon strategy. To add insult to injury, oil giant Exxon Mobil was added to the Index in Tesla's place.
Musk's response? "ESG is a scam. It has been weaponized by phony social justice warriors". According to Musk, ESG only measures " how compliant your business is with the leftist agenda". Well, you wouldn't expect a measured, reasoned response by Musk, would you?
As I mentioned, there is a nugget of truth to his tirade. ESG is the new orthodoxy, and you risk dismissal for publicly questioning the official line (ask HSBC's Head of Responsible Investing, Stuart Kirk). But ESG ratings are notoriously subjective, and do not really give a good guide to a company's positive environmental and social impact. Rather, they are little more than a measure of non-financial risks for institutional investors. Is Exxon Mobil a better company than Tesla from an environmental, social and governance point of view? Debatable (although remember also that S&P's is just one of many such ESG indexes).
It's true that ESG ratings are not all they they were initially cracked up to be. S&P's ESG methodology, for example, is mainly based on how companies perform relative to their peers in the same sector as regards having a stated net-zero goal (which Tesla doesn't, incidentally) and disclosure of climate-related risks. Also, the S and G scores tends to be weighted more heavily than the E score anyway. Other ESG ratings systems, like MSCI's for example, score companies, not on their environmental impact and their emissions records, but on how climate change may affect their bottom line. There is no consistency and often very little logic to them.
Mr. Musk has come under a lot of criticism recently - well, as the world richest dude, you have to expect a fair bit of scrutiny - most of it completely justified. If you ever thought that he was just a sensitive guy who wants to make the world a better place and to help slay the dragon of climate change, you are probably better informed now. He is just as relentless and rapacious and materialistic as the next billionaire, and he is laser-focused on making money (and, more recently, spreading the right-wing gospel). The fact that Tesla cars are environmentally positive is sheer coincidence; the environment is merely a means to an end for Musk.
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