Is Tesla stock an ESG investment? The case for and against Elon Musk's EV company

Asia's Tech News Daily

Tesla CEO Elon Musk and Christian Democratic Union (CDU) party leader Armin Laschet visit the construction site of Tesla's Gigafactory in Gruenheide near Berlin, Germany, August 13, 2021.Patrick Pleul | Reuters

Tesla CEO Elon Musk has said the fundamental good the electric car maker does will be measured in the acceleration of the world to sustainable energy.

Tesla's role in the auto industry's move to electrification is undeniable. Many major automakers are now investing billions in EV and battery manufacturing, and consumer interest in EVs continues to grow. While a Pew Research Center survey this summer found only 7% of U.S. adults currently had an electric or hybrid vehicle, 39% said they were considering an electric vehicle to be the next car they bought. 

“One of the many things he did is he pushed the industry toward taking EV seriously,” former Ford CEO Mark Fields said of Musk.

Tesla didn't surpass 1% share of new car sales until 2018, but during the first half of 2021, Tesla's share of the all-electric segment of the auto market stood at about two-thirds.

“Profitability as a pure EV maker is an accomplishment in and of itself,” said Driss Lembachar, manager of transportation and infrastructure research at Morningstar's Sustainalytics.

Tesla's stock price, now near-$900, and its rise to a near-$1 trillion company, show that investors have been rewarded for sticking with a company that five years ago traded under $50 and amid constant reporting on financial struggles.

But for ESG analysts including Lembachar, “There is some room for improvement.”

Beyond Tesla earnings and sales

As Tesla gets set to report its latest earnings on Wednesday and demand for its EVs shows continued growth, its balance sheet becomes less volatile, and it ramps up manufacturing around the globe — including operations in Europe and China — its success is also an indication that Tesla has passed beyond its roots as a California start-up. It's becoming a mature auto maker. That is one reason ESG experts are watching closely to see how Musk's company evolves in relation to investor concerns about environmental, social and governance issues.

Yana Kakar, global managing partner emeritus at Dalberg, said when ESG debate is boiled down to a choice between whether the product a company produces is good, such as a Tesla EV, or the way it produces the product is good, that is a mistake.

“That's a false dichotomy,” she said. “There is no necessary tradeoff. It is not a zero-sum game.”

How a company produces its products can be a reflection of the same values in the products it creates, and “that is entirely achievable,” Kakar said. 

This debate over Tesla has a parallel to the rise of Silicon Valley companies that are “revolutionizing” industries and, as a result, have to keep their focus on that primary goal and not ESG.

“That attitude has been particularly prevalent in Silicon Valley,” said Jaakko Kooroshy, head of sustainable investment research at FTSE Russell. “But investors have come around to the view that a company can continue 'saving the world' and also have decent sustainability disclosures, and those disclosures do matter in the context of the company trying to save the world.” He added, “The line from Tesla for a very long time was 'we are busy here saving the world so who cares about our emissions disclosures and corporate governance mechanisms.”

Tesla shareholders are pressing company on ESG

The recent Tesla annual shareholder meeting showed how investor pressure is being applied to the company, with a measure for diversity, equity and inclusion reporting approved by shareholders over management objections. The vote came shortly after a legal case in which a former Tesla contract worker sued over a hostile work environment and was awarded $137 million.

ESG experts say it is a sign that Tesla shareholders are making their voices heard, but it will be another year before ESG experts and shareholders can assess any changes made by Tesla in response to the shareholder measure. Shareholder measures are non-binding, and though corporate management often enact changes in response to shareholder wins, it is not always with the scope or comprehensiveness that shareholders expected.

To date, in spite of all of the “good” the company is doing related to climate change, Tesla has not had the best ESG track record.

Paul Tudor Jones' ESG firm JUST Capital ranks Tesla among the bottom 10% of all companies on ESG — its ESG methodology is weighted more heavily to broad social issues than climate specifically.

FTSE Russell has Tesla ranked last among carmakers globally on ESG issues.

Tesla did not respond to a request for comment on its ESG philosophy.

Environment and climate

ESG ratings agencies, in the early days of the industry, don't yet agree on how to assess Tesla even on the “E” of environment with which it is synonymous.

Lembachar said on the environmental pillar in ESG, “They are one of the best … it goes without saying they produce only cars without emissions, and they have been credited for that.”

But in 2018, FTSE Russell gave Tesla a “zero” on environment because even though its revenue sources are green and its cars are non-emitting, the company didn't disclose its own operational emissions.

Historically, Tesla did not provide transparency in terms of reporting its Scope 1 and Scope 2 carbon emissions, water use or waste management. But Tesla has improved as investors pressed for more information and it has started publishing more corporates disclosures in recent years, said Kooroshy, which has led to an improvement in Tesla's environmental ranking in the FTSE Russell ESG analysis.

How Tesla deals with the waste it generates, its water usage, particularly as it is starting to scale around the world and provide millions of vehicles, does matter, he said. There are many ways to produce EVs, some cleaner and some more problematic, and supply chains and sourcing of raw materials such as cobalt, which goes into batteries, and human rights and labor issues in regions where minerals are sourced, need to be considered by investors as risk factors.

“What is clear is that Tesla has made some improvements, but compared to many of its peers in the auto industry, its environmental reporting is still fairly rudimentary,” Kooroshy said. “They are conscious of, and made commitments to disclose more data points in future, and as they do, when they do, we will see it reflected in those ratings.” 


On balance, social and governance issues remain the major hurdles for Tesla. MCSI places Tesla above average in its rankings, but not as an ESG leader.

“If you look at labor management or product safety quality, we see some issues there,” said Arne Klug, vice president of ESG research at MSCI. “We couldn't say that the company's programs, in terms of labor management, or product safety, quality, are really aligned with its growth strategy based on our assessment.”

In March, the National Labor Relations Board ruled that Tesla violated federal labor laws while United Auto Workers and other unions tried to organize at its original plant in Fremont, California. The NLRB also found Tesla guilty of “coercively interrogating” three employees over unionizing activities, illegally firing another and disciplining another.

For JUST Capital, worker issues are one of the primary reasons Tesla gets “tripped” up in its rankings, Whittaker said. How a company supports local communities, what is it doing on diversity, and what it is doing on fair pay and worker issues, are all issues that JUST weighs more heavily than climate alone in its overall ESG rankings because Whittaker said “the public weighs them highly.”

The labor issues will pose a material risk to Tesla as it expands around the world, Lembachar said, as they do for any company with global operations where a confrontation with a labor force at one site can increase the risk of more general strikes. “Workforce issues can have more of an effect now that the company is getting out of this start-up stage and expanding around the world and in Europe, where there is a really strong union tradition. The company must be prepared for labor-related risks and, according to us, must have stronger labor-related programs prepared to tackle issues related to the expansion of its workforce engine around the world.”

Autopilot as an ESG issue

Tesla is facing investigations from the National Highway Traffic Safety Administration regarding Autopilot, the automated driving technology currently in Tesla's Models 3, S, X and Y in 2021.

While it may at first not seem obvious how self-driving is an ESG issue, it in fact falls within traditional categories that date all the way back to the days of Ralph Nader and “unsafe at any speed”: product safety and passenger safety.

Lembachar said Tesla's full self-driving (FSD) is something his firm receives a lot of questions about as an ESG scoring metric, but he says it is simple: “Anything related to passenger safety is product governance and falls under the 'Social' pillar. Everything related to recalls, accidents, defects, responsibility of company is product governance.”

He was quick to point out that if self-driving works it may ultimately cut down on accidents by as much as 90%, and Tesla is potentially far ahead of competitors with the technology. But in a period of time when it is being scrutinized as the cause of accidents and fatalities, self-driving remains a product governance negative, and that metric has a heavy weighting for the auto industry. That hits other companies, too, such as GM after its recent recall on electric cars due to battery fire risk. And Lembacher said these issues have a material cost: for GM, more than $1 billion in the case of the recalls. “That is a very material issue,” he said.

Corporate governance and Tesla' ESG future

Even though tweets may seem ephemeral, Musk's confrontation with the Securities and Exchange Commission over controversial tweets can negatively impact the company's corporate governance score.

“In terms of corporate governance, we see the confrontation between Musk and the SEC as problematic,” Lembacher said. “Tweets are problematic when they change the share price and that can be harmful for shareholders … and that's why the SEC has been flagging it. There is a risk that the regulator at some point will sanction the company and since we are running a risk rating product, we have to flag this issue.”

Questions also remain about the company's acquisition of SolarCity, which was controlled by Musk's cousins (a legal case is ongoing brought by shareholders).

The corporate governance issues raise a bigger question about Musk's impact on ESG ratings.

“It is not enough to say the company is being run by a 'genius' and as a result, 'please don't ask us too many questions,” Kooroshy said. “There is no doubt about the achievements of this company, particularly about accelerating the transition to sustainable energy. This is stuff for the history books, but at the end of the day, for investors trying to understand how much of a portfolio to invest in this company … not enough, he said. “It's still not a free pass. … Making these disclosures doesn't stop them from innovating.”

Kakar said Tesla's mission of accelerating the transition to sustainable energy, and its focus on that as an argument in its defense, is implicitly a relative statement comparing itself to other automakers, and that is where the false tradeoff comes in. “It is terrific they are making EVs … but relative to the next guy is not the important point, and doesn't obfuscate responsibility.” 

Many ESG investors and ESG investment products today accentuate the “E” and climate specifically. “That's where the action is at and investors have seen it as a good story and if you think about environmental performance and climate as the big opportunities, you see Tesla as a big solution and will be attracted to it,” Whittaker said.

But as any company grows in scope and scale, the range of issues they have to contend with changes and investors will ask more about the “how” behind the growing business.

“That's what is going to happen with Tesla as people become more aware of the social risk of how it operates,” Whittaker said. “It is bound to become more of an issue for investors and more of an operational risk for the company if it doesn't perform well … more prominent in the overall calculus of company competitiveness and success.”

“That is not to say it won't do well,” he added. “Musk is an incredible entrepreneur and business leader and I am sure if it becomes an issue he thinks will affect the value of the company or brand, he will respond accordingly. I expect it will become more of an issue for the management team to have to deal with.”

Internet Explorer Channel Network
Asia's Tech News Daily
News Related


Gold Prices Today: Yellow metal likely to remain volatile, support around Rs 47,800-47,660

Gold Prices, Silver Prices Gold prices were flat on December 9 in the international markets as the US dollar and Treasury yields firmed ahead of key inflation data that could ... Read more »

Parliament LIVE Updates: Rajnath Singh to brief Lok Sabha at 11:30 and Rajya Sabha at 12:15 on IAF chopper crash

Parliament Winter Session LIVE Updates: The proceedings of Lok Sabha and Rajya Sabha will resume on ninth day of Winter Session of Parliament with Defence Minister Rajnath Singh to brief both houses ... Read more »

Tata Realty to invest Rs 150 crore to develop ultra-luxury apartments at Delhi's Hailey Road

Representative image Tata Realty and Infrastructure Ltd is planning to invest around Rs 150 crore to develop ultra-luxury residential spaces near Hailey Road in Delhi. The firm has sought requisite ... Read more »

Dr. Reddy's inks pact with Singapore firm to commercialise Trastuzumab biosimilar in select countries

Representative image Prestige BioPharma Ltd, a Singapore-based firm and Dr. Reddy’s Laboratories Ltd., on Thursday announced that the two companies have entered into a binding agreement for an exclusive partnership ... Read more »

Gland Pharma share price up 2% on tentative approval from USFDA for Cangrelor

Gland Pharma share price advanced 2 percent in the early trade on December 9 after the company received a tentative approval from the United States Food and Drug Administration (USFDA) for ... Read more »

RaiITel Corporation gains 4% on Rs 210-crore order from Ircon International

RaiITel Corporation of India share price rose 4 percent in the early trade on December 9 after the company received orders worth Rs 210 crore from Ircon International. “RaiITel Corporation ... Read more »

Consumer confidence at 7-month high

Consumer confidence improved for a third straight month in November to reach a seven-month high, according to a survey by the University of the Thai Chamber of Commerceshowed on Thursday. ... Read more »

HP Adhesives sets IPO price band at Rs 262-274 per share

HP Adhesives IPO price band set at Rs 262-274 HP Adhesives has set the price band for its maiden public offer at Rs 262-274 per share. Investors will be able ... Read more »

Record 29 million-dollar HDB flats sold in November; resale prices rise at faster pace

The highest transaction price in the non-mature estates is a $970,000 five-room loft unit at Treelodge @ Punggol. SINGAPORE – Housing Board resale flat prices rose for the 17th consecutive ... Read more »

Cryptocurrency Prices today on December 9: Bitcoin falls marginally while Ethereum, Terra rise

The global crypto market capitalisation fell by 0.04 percent over the last 24 hours to stand at $2.36 trillion. Bitcoin, currently trading at $49,893.84 saw a fall in its market ... Read more »

Exclusive | Biocon in talks with Mylan to merge biosimilar businesses, plans IPO after merger: Sources

Representative Image (Source: ShutterStock) Biocon is in talks with Mylan for a merger of Biocon Biologics with Mylan’s biosimilar business to achieve scale and unlock value, sources with direct knowledge ... Read more »

Climate change: China's NDRC outlines peak-emissions strategy for data centres, 5G networks to support net-zero goals

China has outlined its strategy to contain emissions in “digital infrastructure” involving data centres and high-speed (5G) telecommunications networks, setting key targets towards its 2060 carbon-neutrality goal. The government will ... Read more »

UK PM Boris Johnson moves to Plan B COVID measures as 131 more Omicron cases recorded

Boris Johnson was speaking at the annual gathering of the Confederation of Business Industry (CBI). British Prime Minister Boris Johnson on Wednesday announced tougher measures such as work from home where possible, ... Read more »

Omicron could spread faster but it''s still not certain: WHO

Omicron variant [Representative image] The World Health Organization says early evidence suggests the omicron variant may be spreading faster than the highly transmissible delta variant but brings with it less ... Read more »

Closure of last Popeyes buffet in the US dubbed 'end of an era'

America’s Last Popeyes Buffet Says It’s Closing Forever The last remaining Popeyes buffet in the US has officially closed due to the pandemic that shuttered dining rooms, according to radio ... Read more »

Apple inches closer to $3 trillion market capitalization

Source: Reuters Apple Inc is within striking distance of a $3 trillion market capitalization, a milestone that would make it as big as the world’s fifth largest economy after Germany, ... Read more »

With large appetite for growth, organised restaurants may see 15% CAGR till 2025

The Indian food service industry has had a roller-coaster ride in the past two years, with coronavirus-induced lockdowns disrupting operations, leading to huge losses in the initial months, followed by ... Read more »

Ofgem 'inaction on unfit energy suppliers leaves households with £2.6bn bill'

The watchdog says it will bring forward within weeks a series of reforms to demonstrate it is serious about the need for reform within the market after it was found wanting during the spike in wholesale energy costs this year. Read more »

Kerala lottery Result: 'Karunya Plus KN-398' lottery winners to be announced at 3 pm

Kerala had set up India’s first lottery department in 1967. Kerala Lottery Result: The Kerala State Lottery Department will announce winners of the ‘Karunya Plus KN-398’ lottery on December 9 ... Read more »

Lottery Sambad Result December 9: 'Dear Bangabhumi Bhagirathi' lottery winners to be announced at 4 pm

Results of the West Bengal State Lottery Sambad ‘Dear Bangalakshmi Teesta’ are announced every Monday at 4 pm. Lottery Sambad Result: The West Bengal State Lottery Department will announce the results of its ... Read more »

Buzzing Stocks | M&M, RailTel Corporation, HCL Tech and others in news today

Mahindra & Mahindra: Reliance BP Mobility (RBML), operating under the brand name Jio-BP and The Mahindra Group, announced a non-binding agreement for exploring creation of electric vehicle products and services, alongside ... Read more »

Hong Kong stocks advance for third day as China policy easing bets gain traction

Hong Kong stocks climbed for a third day as an official report showed China’s factory-gate inflation eased last month from a 26-year high, bolstering the case for more policy easing ... Read more »

Google to give additional $1,600 staff bonus globally this year

Alphabet Inc’s Google said on Wednesday it will give an additional bonus to its employees globally this year, as the tech giant pushes back its return-to-office plan. Google will give ... Read more »

South African regulator approves Pfizer booster vaccine after surge in COVID cases

South Africa has approved the use of Pfizer‘s coronavirus booster vaccine for people aged over 18 years, amid mounting concern following a record of almost 20,000 infections overnight, largely ascribed ... Read more »

'Growth remains inequitable, needs nurturing before it once again realises full potential'

Indranil Pan, Chief Economist at YES Bank A lot has been written about the second quarter GDP that came in at 8.4 percent year-on-year after a 20.1 percent spurt in ... Read more »

General Rawat was strong proponent of India-US defence partnership: US

The Indian Air Force on December 8 confirmed the demise of Chief of Defence Staff (CDS) General Bipin Rawat, his wife and 11 others who were on board a chopper ... Read more »

Lyft pushes back staff's return to office until 2023 at earliest

Lyft’s offices will fully reopen in February as planned but returning will be optional for the whole year. NEW YORK (BLOOMBERG) – Lyft said employees can work remotely for the ... Read more »

US dollar stays soft, with Omicron still top of mind

The dollar failed to pick up ground on most major peers on Thursday as markets saw optimism in early data hinting the Omicron variant of the new coronavirus may not ... Read more »

US Senate passes Republican bill to overturn Joe Biden vaccine mandate

US President Joe Biden (AP Photo/Alex Brandon) The Democratic-controlled U.S. Senate on Wednesday approved a Republican measure that would overturn President Joe Biden’s COVID-19 vaccine-or-test mandate for private businesses, with ... Read more »

Zuckerberg, Chan to invest up to $3.4 billion for science advances

The company that runs the philanthropy of Facebook CEO Mark Zuckerberg and his wife, Priscilla Chan, is investing up to $3.4 billion to advance human health over 10 to 15 ... Read more »

GM's Cadillac Lyriq SUV enters the fray in China as battle intensifies in world's largest EV market

General Motors (GM) has joined the battle for supremacy in China’s increasingly crowded electric vehicle (EV) market, after its new SUV received a warm response from buyers in the mainland. ... Read more »

Famous maid cafe promises out-of-the-ordinary experience in biggest flagship in Akihabara

The cafe allows customers to meet cute maids who can sing and dance, which is one of the reasons why it is very popular. Infinia Co. Ltd. will open its ... Read more »

Hot Stocks | Here is why you should bet on Adani Ports, Glaxo Pharma, Nalco for short term

The benchmark indices on December 8 saw a strong gap-up opening following its global peers and closed one and a half percent higher without filling its opening gap. Two back-to-back ... Read more »

Senate rejects Biden's vaccine mandate for businesses

WASHINGTON — The Senate narrowly approved a resolution Wednesday to nullify the Biden administration’s requirement that businesses with 100 or more workers have their employees be vaccinated against the coronavirus ... Read more »

Trade Spotlight | What should you do with MCX India, Bajaj Healthcare, Biocon and Polyplex Corporation?

Market rally It was another strong day for the market as the benchmark indices rallied over 1.7 percent on December 8, continuing the uptrend for the second consecutive session following ... Read more »

Is Canada Good For Immigrants? 5 Reasons To Know

Are you planning to apply for immigration for your long-lost love and dream country, Canada? If yes, then we know what you must be going through. After all, the process ... Read more »

mm2 Asia taking pause on Catalist listing of cinema business

mm2 Asia had said that it would pursue the Catalist listing of its cinema business which operates under the Cathay brand. SINGAPORE (THE BUSINESS TIMES) – Entertainment group mm2 Asia ... Read more »

AVR buys ailing waste processor AEB

The Rotterdam waste company AVR buys the Amsterdam waste processor AEB for 450 million euros. The municipality of Amsterdam, the former owner, reports this on Wednesday. Supervisory Authority for Consumers ... Read more »

Inflation? We're drinking up grandma's house!

How disruptive is the 5.2 percent inflation that the Netherlands experienced in November? Or, the 5.9 percent inflation that was in the Netherlands according to the European definition? It could ... Read more »

Apple doesn't need to change App Store while Fortnite lawsuit is pending

Apple does not have to allow app developers to point out to users that they can take out cheaper subscriptions outside the App Store for the time being. The California ... Read more »
On you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic