Tesla (NasdaqGS: TSLA) is already in the S&P 500, but the electric carmaker may not make the cut for exchange traded funds tracking the S&P 500 ESG Index.
Tesla has been at the forefront of the electric vehicles industry and broadly associated with clean energy technology, but that does not automatically make it a sustainable company. According to S&P Dow Jones Indices, the car manufacturer has low rankings in terms of its performance on other environmental, social, and corporate governance, or ESG, issues, Barron’s reports.
The company needs to pass a test at the S&P 500 ESG Index’s next annual rebalancing, which is scheduled for the end of April, where Tesla would need to receive a sustainability score ranking high enough relative to peers in the automobile industry.
In its last assessment in 2020, the electric carmaker only scored 22 out of 100, so it fell in the bottom 22nd percentile of global automakers. Tesla ranked 436th among the S&P 500 members.
Consequently, investors may not see TSLA in funds like the SPDR S&P 500 ESG ETF (EFIV). The ETF tracks the S&P 500 ESG Index, which is designed to measure the performance of securities meeting certain sustainability criteria (i.e. criteria related to environmental, social, and governance factors) while maintaining a similar overall industry group weight as the S&P 500 Index.
The ESG score is based on S&P analysts’ research across many factors behind sustainability. Tesla even received a 28 out of 100 on the S&P environmental metrics, despite its near-perfect score on carbon emissions. It ranks poorly on transparency of its environmental reporting, along with climate strategy and environmental policy and management.
There is more to ESG than environmental factors. Tesla scored a low 6 out of 100 on social metrics across the board, which include metrics like philanthropy activities and human capital development. The company received 49 out of 100 in corporate governance due to high scores in privacy protection and innovation management.
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