Will Tesla make the grade to join the S&P 500 ESG Index?

March 31, 2021

S&P Dow Jones Indices has announced that although Tesla has been added to the S&P 500, it will not automatically join the S&P 500 ESG Index. Despite specialising in “green” products, Tesla will not be able to shortcut the usual process. Its inclusion in the index will be dependent on its sustainability performance among its peers, which will be assessed in the next annual rebalance of the S&P 500 ESG Index at the end of April. The key factor determining Tesla’s inclusion will be its S&P DJI ESG Score, which is derived from the annual Corporate Sustainability Assessment (CSA). However, Tesla doesn’t currently complete the CSA, therefore its score is based upon the company’s public disclosures.

Tesla’s current overall score is 22 out of 100 and its Environmental score is 28. These are surprisingly low scores for a leading company specialising in electric vehicles, particularly because Tesla has scored poorly in several areas, including environmental reporting, climate strategy, and environmental policy and management systems. Predicting Tesla’s outcome in April based on this is challenging, as it depends on its performance relative to its peer group. However, an article in Barron’s has suggested that if its score doesn’t improve, the company could become the largest S&P 500 company to be excluded from the S&P 500 ESG Index.

ESG investors are keenly awaiting S&P Global’s decision in April, and there is much speculation as to the impact that recent news stories may have. Tesla’s ESG credentials were recently called into question, following its $1.5 billion investment in bitcoin and the significant environmental impact of the cryptocurrency. According to an article in the Financial Times, S&P Global said that bitcoin exposure would not impact this year’s ESG metrics, but that it might be a consideration in the future. Tesla’s challenges show that a company’s products or brand image are not replacements for sustainability disclosure and performance, when it comes to inclusion in ESG indices.

Author: Chloe Good