Tesla was booted from an ESG indicator. Why it doesn’t matter as much.

The decision to remove

Tesla

The S&P 500 ESG index earlier this week has undoubtedly surprised investors, as the pioneer of electric vehicles will appear to be a clear choice for sustainable investment.

Tesla (Ticker: TSLA) CEO Elon Musk has vehemently rejected the social media move and criticized ESG investment – which considers environmental, social and corporate governance – as a “scandal”.

But the impact of removing Tesla from a certain index may not be as great as many think, and the ESG investment, as a whole, is still not leaving Tesla.

By the end of February, Tesla was the fifth-largest stock among hundreds of global ESG funds, according to financial intelligence agency EPFR, with a combined net worth of more than 400 billion.

These ESG funds, including index-tracking exchange-traded funds and actively managed mutual funds, hold a combined ট 4.6 billion worth of Tesla shares, just behind.

Microsoft

(MSFT),

Apples

(AAPL),

Alphabet

(GOOG), and

Nvidia

(NVDA).

ESG funds not only owned a lot of Tesla’s stock, they owned more than a regular fund — or in other words, they supported Tesla more than any other stock. Among the equity funds, including both ESG and non-ESG – electric auto makers made up only 0.9% of their total assets as of February. For ESG funds, that share was 1.15%.

Shares of Tesla have plummeted since February, and the market as a whole has shrunk. It is unlikely that the weight of stocks in most ESG funds has changed dramatically.

Although Tesla will no longer be included in the S&P 500 ESG index, the index itself is not as prominent as many would think. Launched in 2019, It is relatively new to ESG space, and two US ETFs are tracking it,

SPDR S&P 500 ESG ETF

(EFIV) and

Xtrackers S&P 500 ESG ETF

(SNPE), has a combined wealth of only 1.2 billion.

This is a tiny fraction of the $ 400 billion invested in all ESG funds, not to mention all the separately managed accounts and private equity strategies.

In fact, many are much larger এবং and arguably more influential চক index-tracking ESG funds still have Tesla as one of their top holdings, as they have different values ​​on what is “sustainable” and what is not.

For example, 22 billion

iShares ESG Aware MSCI USA ETF

(ESGU) and 3.4 billion

iShares MSCI USA ESG Selection ETF

(SUSA) has a 1.8% stake in both Tesla shares. ৬ 3.6 billion

iShares ESG MSCI USA Leaders ETF

(SUSL) owns 3.6% more assets, including investing in stocks.

All three funds track indexes from MSCI, a leader in the ESG indexing space.

“Ninety percent of the larger ESG ETFs use MSCI-driven indicators,” said Robert Smith, president and chief investment officer.

Sage

Advisory Services, which operates individually managed accounts for clients with a focus on sustainability-related risks.

MSCI rates Tesla as “average” out of 41 companies in the automobile industry, while Sustainability, another large ESG rating company, says Tesla has “moderate” ESG risk when compared to industry peers.

Active managers, who are generally more selective than index funds, although they are less interested in automated creators.

Many active funds known for ESG Focus, such as the $ 26 billion Parnassus Core Equity Investor Fund (PRBLX), the $ 5.5 billion Putnam Sustainable Leaders Fund (PNOPX), and the $ 5.6 billion Calvert Equity Fund (CSIE) do not share any of their shares.

This is exactly what the S&P Dow Jones Indices company looks like. Margaret Dorn, North America head of S&P’s ESG Index, wrote in a blog post on Tuesday that some of the reasons behind Tesla’s removal from the firm’s ESG index include low-carbon strategies and lack of business code of conduct, racial discrimination and poor working conditions. , As well as an investigation management firm after multiple deaths and injuries were attached to his autopilot vehicle.

“Tesla is a great company in many ways, but from an ESG perspective, it has a lot of room for improvement,” said Andrew Poreda, SVP and Sage’s senior ESG research analyst. That company is fairly well managed. ”

Sage has already weighed less on the market than Tesla, Poreda said, and plans to reduce its holdings: “This is entirely a risk management issue.”

Despite its relatively small underlying assets, the S&P 500 ESG index is still known to be just as influential.


S&P 500 Index

Is

“It’s interesting to see how much headline it gets from traditional investors,” Poreda said, “but it’s a positive thing, many investors need to reveal some of the subtleties of ESG. S&P input helps illuminate what people are looking for in companies from an ESG perspective. ”

Since the sale stopped this year, Tesla stock has lost 45% of its value so far this year. Both the S&P 500 and the S&P 500 ESG index fell 19%.

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