What the Hell Is the S&P Doing?

Amanda Heckman|May 21, 2022

Shocking news…

Tesla (TSLA) has been kicked out of the S&P 500 ESG Index.

Thanks to some lawsuits and a few accident investigations involving the carmaker, the brainiacs behind the index have deemed Tesla unfit for the socially conscious investor.

Huh?

The leading electric car manufacturer, which took nearly 1 MILLION gas-powered cars off the road last year, didn’t make the cut when the index got rebalanced in April.

The absurd news is proof that ESG (environmental, social, governance) investing isn’t what it seems… and your dollars would be much better off elsewhere.

Open Your Eyes

Just a few weeks ago, we warned you not to fall for this hot investing trend.

We shared a few eye-opening facts…

• 68% of U.S. executives copped to “greenwashing” (when a company says it’s environmentally conscious but isn’t making any effort to be so).
• Executives use ESG as a scapegoat when things go wrong… but do not credit it as a cause when things go right.
• Companies in ESG portfolios aren’t so good at following labor or environmental rules. And companies added to ESG portfolios did not subsequently improve compliance with labor or environmental regulations.

And now the news that Tesla has been banished from one of the biggest ESG indexes is the cherry on top.

This essay is not meant to be a love letter to Tesla. (We save that for THIS car company.)
After all, we’ve shown readers how the company isn’t really a car company, considering its profits come from taking advantage of government-issued carbon credits.

And we can’t decide whether Elon Musk is as crazy as a fox… or just crazy.

But the S&P’s reasoning for dropping Tesla is laughable.

It’s Absurd

We dug into Tesla’s ESG score, since the S&P failed to include that in its announcement.

(A company’s ESG score is a weighted average of all three components, with a range from zero to 100.)

We had to go back to 2020 to get the breakdown of the rating. For governance, Tesla rated a 49. Not bad. For social, a 6. Yikes. And for environmental, a surprising 28.

In the news release, the S&P dinged Tesla for not having a “low-carbon strategy.”

What?

Again, this is a company that is projected to take nearly 3 million gas-guzzlers off the road in 2025. Its carbon footprint is a fraction of its peers’. It is a leader in renewable energy through its solar business.

Ah, but the fact that Tesla makes low-emission products doesn’t weigh as heavily as another company’s efforts to reduce emissions while running its business.

Absurd.

So as Tesla exits stage right, Marathon Oil and Phillips 66 – you know, oil companies – are welcomed onto the list. Because they have plans to reduce their carbon footprints… while still drilling for oil.

Not Good Enough?

As for Tesla’s low social score, which rates how employees are treated, a quick look at the company’s benefits package tells a very different tale.

The company offers generous benefits and perks for employees, including…

• Extensive options for health insurance
• Paid parental leave, emergency child care reimbursement, day care discounts
• 401(k)s, profit sharing, employee stock purchase program with 15% discount on stock purchases
• Bonuses, tuition reimbursement, on-site fitness, commuter benefits
• Mental health counseling and financial planning services.

Not to mention Tesla released its first-ever diversity report in late 2020 for added transparency.

But here’s the kicker…

The S&P admitted that although Tesla’s score has remained steady… its industry peers have done better with ESG commitments to improve their scores.

Thanks to that technicality, Tesla’s score ranked in the bottom 25% of companies in the index… and the company got the boot.

The S&P’s decision has left a lot of folks scratching their heads… but not us. We’re convinced ESG funds – many of which are based on the S&P 500 ESG Index – are just a marketing scheme to guide well-meaning investors into higher-priced products. The only folks getting richer are the brokers peddling them.

Smart investors would do well to stay away.

Note: While Tesla may have shifted the EV industry into high gear, it’s not our favorite company in the space. We’ve been watching the company we’re calling the “Tesla killer” for years… And now that its stunning car is coming out of production, we’re more excited than ever by the potential. Check out our No. 1 EV play right here. It’s dirt cheap, but it won’t stay that way for long. Click here.