Musk fired again. This time, the Silicon Valley iron man is not the SEC of the Securities Regulatory Commission or the twitter board of directors, but the S & P 500 Recently, S & P Dow Jones announced that Tesla would be excluded from its ESG index. In this regard, the S & P Dow Jones index explained that Tesla lags behind its peers for various reasons, including the lack of low-carbon strategy, suspected of racial discrimination, poor working conditions at its Fremont plant in California, and improper handling of the regulatory authorities' investigation of vehicle related casualties.
abstract
Author / zhouyongliang
Editor / Jingyu
Top 10 companies excluded by S & P 500esg index in 2022 ｜ S & P
This directly "annoyed" musk. Later, he posted on social media twitter that "ESG is a scam. It is used as a gun by those disguised as social justice fighters. S & P rating has lost their integrity. ExxonMobil Both are ranked among the top ten ESGS in the world by the S & P 500, but Tesla failed to make the list! "
In fact, Tesla did not join the S & P 500esg index for a long time. One year ago, from May 2021, Tesla officially became a constituent stock of S & P 500esg index. However, danielperrone, director and operation director of S & P 500esg index, once said that Tesla was selected into the ESG index not because of its performance in sustainable development, but because of its market capitalization.
It is understood that the selection criteria of S & P Dow Jones ESG should not only consider the company score, but also consider the market value. The goal is to include companies with 75% of the circulating market value in each group. At that time, Tesla ranked only 22 points, ranking fifth among the five companies in the auto and parts industry group of the S & P 500 index. However, because Tesla had a market value of more than $500billion and was a heavyweight of 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 index by ESG? What is the message behind this?
What is ESG
To answer these questions, we must first understand what ESG is? ESG in people's mouth is actually the abbreviation of three English words:
Environment ｜ environment, including climate change, natural resources, pollution and environmental governance;
Social ｜ society, including human capital, product responsibility and product quality;
Governance includes internal governance, corporate behavior, and protection of shareholders' interests.
Generally speaking, ESG is an investment concept and an indicator to measure the sustainable operation ability of enterprises. If traditional investment is more concerned about the return and risk, and investment and decision-making are carried out around these two dimensions, ESG investment adds the dimension of ESG influence on this basis. Investors hope to have ESG influence while pursuing financial returns.
The investment concept 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, America and other countries. According to the 2020 annual report statistics released by the global sustainable investment alliance (GSIA), the asset management scale of global ESG investment has increased from $13.26 trillion at the beginning of 2012 to $35.30 trillion at the beginning of 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 U.S. market will account for 48% in 2020, surpassing the European market ranking first before, and becoming the largest market for ESG investment. At the same time, the market share of Japan has increased rapidly, reaching 8% in 2020, ranking third.
The reason why the capital market pays so much attention to ESG is that many investors believe that ESG investment can bring excess returns. In this way, they can not only obtain risk adjusted market returns, but also invest in line with their own values. However, the discussion on the excess return of ESG investment has been discussed by academics and market practitioners since the 1980s, and finally 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 index company mentioned above, the well-known agencies also include Morgan Stanley Capital International Corporation (MSci), KLD research and Analysis Corporation (KLD), thomsonreuters, vigeoeiris, etc., more and more investors invest through the third-party ESG evaluation results.
According to the data on the S & P Dow Jones website, the S & P 500esg index is tracked by at least 16 exchange traded funds (ETFs); According to a S & P survey, by the end of 2020, the assets covered by the S & P 500esg index were US $11.7 billion.
This is partly why musk is so angry. Tesla may have an impact on Tesla's share price after being kicked out of the S & P ESG index. At the same time, it also sends a signal to the outside world that Tesla has problems in ESG. Some investors worry that other rating agencies may follow suit and further downgrade Tesla's ESG rating.
Tesla and ESG's "love hate"
In fact, prior to this, musk has publicly criticized ESG rating for many times. In early April this year, musk said frankly that "enterprise ESG rating is the incarnation of the devil", and said that the investment principle of ESG "should be deleted if it is not amended". In late April, musk also said that "ESG rating is meaningless". In the 2021 impact report released by Tesla earlier this month, the company criticized the current ESG evaluation method on the market for "fundamental defects", and said that ESG needs to improve its ability to measure and evaluate the real situation.
This is mainly because Tesla did not get high scores in many ESG ratings. For example, among the 41 automotive companies rated by Morgan Stanley Capital International (MSci), Tesla was only rated as "average", and ranked 8255 out of 14735 in the world. In the rating report released by sustainalytics in November 2021, Tesla's ESG score was 28.5, which was "medium risk".
This seems to be contrary to the feeling of many people. Tesla has led the development of electric vehicles and clean energy, making a significant contribution to sustainable development. According to the financial report, Tesla earned $1.465 billion from carbon trading sales in 2021. Why didn't Tesla get a better ESG score?
S & P Dow Jones ESG index score ｜ S & P Dow Jones
This starts with the ESG scoring standard. From the definition of the sustainable Accounting Standards Board (SASB), Tesla's substantive ESG topics include product quality and safety, labor health and safety, product design and life cycle management, source and efficiency of raw materials, energy management, etc. Overall, Tesla's e (environment) performance is good, but its s (Society) and G (Governance) performance is relatively insufficient.
Compared with its excellent performance in the environment, Tesla's biggest problem is in corporate governance. For example, recently, musk was "targeted" by the US Securities and Exchange Commission (SEC) again because he delayed disclosing that he held a large number of shares in twitter; Previously, the SolarCity M & A case, Musk's "funds ready" tweet, the independence of the board of directors and CEO compensation were all considered to have many governance problems.
In addition, Tesla has also been criticized repeatedly in terms of social issues, including delivery delay, battery design defects, models collision fire accident, solar panel fire accident, safety concerns of automatic driving assistance system, etc.
However, although the society is relatively consistent in the investment philosophy of ESG, there is no unified scoring standard. For example, rating agencies in different countries and regions often have different understandings of ESG. At the same time, the value orientation of the designer of the evaluation organization will also affect the ESG score. This also leads to great differences in the ESG ratings of the same company from different rating agencies.
Taking Tesla as an example, MSCI's rating emphasizes the environmental impact of products, so Tesla is rated as a; Justcapital emphasized labor relations, but was dissatisfied with Tesla's frequent employee safety concerns and retaliation against whistleblowers' employees, and gave it a minimum rating of 10%; FTSE rating of FTSE in the UK attaches importance to environmental disclosure, human resources policy and product quality of enterprises. It also believes that Tesla must improve these aspects, so the rating is not good.
Is ESG a hoax
Is it reasonable for musk to "bombard" ESG 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 that should be produced on the world, but focuses too much on measuring the value of dollar risk / return."
At the same time, for example, when scoring ESG in the automotive industry, the larger the proportion or quantity of tram sales under common sense, the higher the score should be. However, the reality is that a large number of automobile manufacturers with high fuel consumption still need to reduce carbon emissions slightly in the manufacturing process, which can significantly improve ESG scores. Under this scoring system, some oil and gas companies (such as ExxonMobil) received higher scores than Tesla.
After careful analysis of Musk's remarks, we can first find that he has some misunderstandings about ESG. Taking the S & P 500esg index as an example, the relevant selection is conducted according to the industry group. Tesla is in the automotive and parts industry group, and its competitor is General Motors , anbofo, borgwana , Ford Motor . In contrast, ExxonMobil is listed in the energy industry, and there is no comparability 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 overgeneralization to completely deny ESG rating. Shangdao ronglv is an expert agency engaged in ESG rating in China. Its chairman guopeiyuan said that ESG rating is not perfect, but it is indispensable. ESG information disclosure and ESG rating are important infrastructure for ESG investment and development.
At the same time, he gave three reasons, one of which was that ESG rating emphasized comprehensiveness. Evaluation indicators should cover all aspects, but the problem is that each indicator can be assigned a small weight. This is an important reason for Tesla's grievances: even though Tesla far surpasses other companies in the carbon emission indicator, if other indicators are not good enough, its comprehensive score cannot rank first.
Secondly, another common feature of ESG rating method is universality, that is, the evaluation indicators should take into account the situation of most companies in the industry. Tesla is classified into the automobile industry, which naturally includes traditional automobile enterprises and new forces in automobile manufacturing. The evaluation indicators should take both into account, and traditional automobile enterprises account for more. Therefore, it can be considered that the indicator setting will be more friendly to traditional automobile enterprises.
At the same time, universality also brings another problem, that is, companies with good, medium and poor performance in the industry should not only care for top students, but also poor students. In the real world, from an average point of view, whether it is the early social responsibility investment (SRI) or the current ESG, the focus of ESG evaluation of listed companies is to control the negative first, and then look at the positive (social value). This is also the problem Tesla complained about.
If we put aside the superficial anger and dissatisfaction, Musk's comments on ESG rating are more like a kind of "truth", calling on the latter to pay more attention to the positive impact of the company on the world rather than reduce the negative impact.
Compared with ESG investment in Europe and the United States, which has been developed for 20 years, China is still in its early stage. At present, according to the data of China Securities Regulatory Commission, in 2021, nearly 90% of the listed companies held performance presentation meetings, and 1/4 of the companies disclosed ESG or social responsibility reports. In the automotive industry, Xiao Peng, ideal , Dongfeng, GAC, Geely, etc. released ESG reports.
However, ESG investment may profoundly change China. Recently, the concept of ESG in China began to take off, and the important background is "carbon neutralization". Zhumin, President of the National Institute of finance of Tsinghua University, once said that carbon neutrality is actually a fundamentally subversive reconstruction of China's future economic development model and the entire economic structure. The entire economy has moved from high carbon to low carbon, and the energy revolution and economic innovation have reshaped the entire manufacturing industry.
ESG investment enables many business organizations to create business value, and at the same time, they also begin to think about how to achieve some social goals that exceed the income through investment. However, at present, the society still lacks consensus on the future development direction of ESG. ESG investment should not be just a kind of values and political correctness, but should accurately calibrate the scoring system to better stimulate the sustainable development of commercial companies. (source: geek Park)