Hypocrisy from the ESG Index?

Tesla gets booted from the S&P ESG Index … what’s really behind this move? … the importance of following data, not emotions, when investing … Louis Navellier is going live today

There’s a feud developing between Tesla CEO Elon Musk and the Environmental, Social, and Governance (ESG) community.

By itself, it’s an interesting story, which we’ll dive into.

But this simmering quarrel also underscores the critical importance of following actions, not words. For our investment purposes, that means investing according to actual money flows – even if those flows are at odds with some publicly stated goal or mission.

All of this ties together with a special, live event happening today at 4 PM ET with legendary investor, Louis Navellier.

Lots to cover. Let’s jump in.

***The rise of “ESG” investing

For readers less familiar, ESG is the acronym for “Environmental, Social, and Governance” (ESG).

The goal of ESG investing it to generate growth and income, but do so in a manner that has a lighter environmental footprint and a greater positive contribution to society, while accomplishing it in a more transparent way that benefits both shareholders and stakeholders.

As our society becomes increasingly focused on “justice” in its various forms, ESG is a leading form of investing justice.

To provide investors an easy way to track companies that have an ESG orientation, the S&P created an S&P 500 ESG Index. Here’s how the S&P itself describes it:

The S&P 500 ESG Index is a broad-based, market-cap-weighted index that is designed to measure the performance of securities meeting sustainability criteria, while maintaining similar overall industry group weights as the S&P 500.

Notice that despite the “S” of social and “G” of governance being fundamental to ESG’s mission, they don’t even show up in the S&P’s own one-sentence definition. Instead, it focuses purely on the “E” of environmental, though the word used is “sustainable.”

Now, as you’re likely aware, the Biden administration and governments around the world are pushing hard for more sustainable ways of living. One of the top initiatives is a move away from combustible engines, toward electric vehicles.

Meanwhile, Tesla is the world’s largest electric-vehicle manufacturer.

It would seem a no-brainer that Tesla would be considered a top ESG stock with a home in the S&P’s ESG Index.

This is where the drama begins.

***The S&P boots Tesla out of the ESG Index

Last week, the S&P ESG Index performed an annual rebalance of its holdings and kicked out Tesla.

This move results in additional eyebrow-raising when you consider the index kept ExxonMobil and JPMorgan.

Obviously, Exxon’s business centers around fossil-fuel energy, which is cause for some ESG second-guessing. Meanwhile, environmentalists have attacked JPMorgan in the past because it’s the largest lender to oil companies.

But they’re in and Tesla is out.

For more color on this, let’s turn to Louis:

The S&P 500 ESG index recently kicked out Tesla and added ExxonMobil in its annual rebalancing, which is raising questions about what exactly is ESG.

Interestingly, according to the University of Massachusetts’ 2021 Toxic Air Polluters Index that ranks the 100 largest corporations based on 2019 data, Tesla ranked 22, ExxonMobil ranked 26 and Marathon Petroleum ranked 28. 

The vast majority of Tesla’s air pollution, according to the University of Massachusetts, is attributable to its lithium-ion battery plant outside of Reno, Nevada.  


We all are, including Elon Musk, who is now mocking exactly what ESG stands for, since social and diversity standards were cited by S&P Global for Tesla being booted from the S&P 500 ESG index.

Here’s one of Elon Musk’s tweets about it:

Photo of Elon Musk's tweet about Exxon making the ESG list while Tesla didn't
Source: @elonmusk

***“What you do speaks so loudly that I cannot hear what you say” – Emerson

So, what’s the S&P’s reasoning for this decision?

From Margaret Dorn, senior director and head of ESG indices, North America, at S&P Dow Jones Indices:

While Tesla may be playing its part in taking fuel-powered cars off the road, it has fallen behind its peers when examined through a wider ESG lens.

Here’s more from MarketWatch:

Specifically, it was the “S” and “G” that soured Tesla’s “E”, S&P’s report shows.

Tesla was marked down for claims of racial discrimination and poor working conditions at its Fremont, Calif., factory.

The carmaker was also called out for its handling of the NHTSA investigation after multiple deaths and injuries were linked to its autopilot vehicles.

Now, without downplaying either the discrimination claims or the death/injury investigations, we should point out what appears to be an inconsistency.

As you know, Exxon remains in the index. And you might have questions about Exxon’s place in the index due to its oil-focused business.

But as Margaret Dorn said, perhaps we need to view Exxon through a “wider ESG lens.” The same lens that booted Tesla.

Well, when we do, it raises even more questions instead of explaining why Exxon is around.

From Grist, less than a year ago:

ExxonMobil isn’t exactly known for being an environmental justice champion. But according to a scorecard published last week, the oil major is dead last among the S&P 500 companies when it comes to racial equity and environmental racism…

Fossil fuel producers made up half of the scorecard’s worst 10 companies on racial justice, with ExxonMobil at the very bottom, along with other oil and gas firms like Marathon Petroleum and Valero Energy.

Beyond that, at the turn of the year, the Seattle Times pointed out that despite having a banner year for earnings, Exxon wasn’t raising employee salaries to be consistent with inflation.

Tesla may or may not belong in the ESG Index. But if we’re holding all companies accountable to the same standards, should Exxon be there if Tesla isn’t?

***What might all of this actually be about?

Let’s jump back to Louis:

What is essentially happening is that since ESG funds and indices have severely lagged the S&P 500 this year because energy is the strongest sector, many pension funds are starting to panic and looking for any excuse to add energy stocks, otherwise they risk grossly underperforming the S&P 500 and other indices this year. 

This essentially means that the energy stocks that were once shunned by Wall Street (remember that ExxonMobil was kicked out of the Dow Industrials) are now being embraced. 

In fact, in my opinion, the institutional buying pressure in energy stocks is happening as S&P Global redefines what ESG is and pension funds re-embrace energy stocks to “catch up” and improve their respective performance.

***As we noted at the top of today’s Digest, what matters are actions, not words

This ESG/Tesla/Exxon situation shows that lofty ESG goals might look great in a press release, but when real dollars are involved, we see where priorities actually lie…


Investors must realize this is the reality. After all, the S&P dropping Tesla while keeping Exxon means a significant shift in money flows from the institutional money managers who track these indexes. That will hurt Tesla investors and help Exxon investors.

You can argue about whether Tesla deserves to be in the index or not, but at the end of the day, it’s irrelevant – follow the money.

Well, it turns out, this focus on returns, money flows, and quantifiable financial strength is at the heart of Louis’ multi-decade market approach.

Not emotions, social goals, or gut feelings – just numbers.

And today at 4 PM, Louis is hosting a special event that details what he sees as a massive shift in the direction of these money flows, which is showing up in the numbers.

***How money flow is changing based on the Great American Wealth Shift

Here’s Louis explaining what today’s event is all about:

I’m going to dive into exactly what “money flow” is and the system I use to track it.

During the event, I’ll explain to you how to follow money flow… and how to find the types of stocks that can see incredible gains as a result of those flows.

I’ll also share one of the top stocks I see a lot of money about to flow into AND the No. 1 stock I see a lot of money flowing out of in the near future (one you’ll surely want to avoid).

Money flows don’t lie. Therefore, if you want to better returns, this is what you should be watching, not thematic aspirations.

In MarketWatch’s article about Musk and the ESG Index, it had an interesting line:

Investing usually uses a combination of head, heart and gut even if it’s not supposed to. And perhaps no market theme stirs “all the feels” quite like ESG.

Investing shouldn’t involve heart. In fact, giving heart a voice is one of the top ways to lose money.

That’s why sticking to cold, impartial data like money flows is a superior alternative.

Right now, Louis sees money fleeing one part of the market, and he believes billions are about to flow into another, making a lot of people wealthy.

Today, at 4 PM ET, you’ll get all the details. Just click here to reserve your seat.

Keep your eye on the Tesla/ESG story, and invest your money according to actions, not words.

Have a good evening,

Jeff Remsburg

Article printed from InvestorPlace Media, https://investorplace.com/2022/05/hypocrisy-from-the-esg-index/.

©2022 InvestorPlace Media, LLC