BOSTON (REUTERS) - S&P Dow Jones Indices has removed electric carmaker Tesla from its widely-followed S&P 500 ESG Index, citing issues including racial discrimination claims and crashes linked to its autopilot vehicles.
Tesla chief executive Elon Musk responded with harsh tweets, including that "ESG is a scam".
Other contributing factors to the changes, effective May 2, included Tesla's lack of published details related to its low carbon strategy or business conduct codes, said Ms Margaret Dorn, the organisation's head of environmental, social, and governance (ESG) indexes for North America, in an interview.
The back-and-forth over the index changes reflects a wider debate about the metrics used to judge corporate performance on ESG issues, a growing area of investing.
Tesla has become the most valuable auto industry company by pioneering electric vehicles and expanding into battery storage for electric grids and solar power systems.
Even though Tesla's products help cut planet-warming emissions, Ms Dorn said, its other issues and lack of disclosures relative to industry peers should raise concerns for investors looking to judge the company across ESG criteria.
"You can't just take a company's mission statement at face value, you have to look at their practices across all those key dimensions," she said.
Tesla representatives did not immediately respond to questions. The company has previously called ESG methodologies "fundamentally flawed".
Mr Musk tweeted: "Exxon is rated top ten best in world for environment, social & governance (ESG) by S&P 500, while Tesla didn't make the list! ESG is a scam. It has been weaponized by phony social justice warriors."
Asked about the tweet, a representative for the index provider said Mr Musk may have been referring to a list on a company blog post of the largest 10 constituents by market cap of the S&P 500 ESG Index after the removal of Tesla and others.
The list is "not a ranking of best companies by ESG score", the representative said.
Exxon now accounts for 1.443 per cent of the weight of the index.
Apple was the largest at 9.657 per cent.
Investors concerned about issues such as diversity and climate change have poured billions of dollars into funds using ESG criteria to pick stocks, prompting debate about how effectively the funds promote change or whether they push companies too much on issues that should be settled by government policy.
S&P Dow Jones Indices is majority-owned by S&P Global.
Mr Musk and others have complained that the firm and its rivals conflate too many issues by bundling ESG concerns into one total score.
For instance, a fund based on the S&P 500 ESG Index, the SPDR S&P 500 ESG ETF, received the low rating "D" by climate activist research group As You Sow, which noted that despite its title and sustainability mandate, fossil fuel stocks make up 6.5 per cent of fund assets.
In the company blog post reviewing changes from April 22, S&P's Ms Dorn said the index aims to keep industries weighted the same as they are in the regular S&P 500 index "while enhancing the overall sustainability profile of the index".
In practice, that means it can keep oil companies while leaving out big players like Facebook parent Meta Platforms and Wells Fargo & Co.
Ms Dorn said Tesla's ESG score had declined slightly from the "22" it received last year.
At the same time, the average score among other automakers improved, pushing Tesla out of the ESG index because of a rule against including lowest-quartile performers.
Among other big ESG ratings agencies, MSCI gives Tesla an "average" ESG rating, while the Sustainalytics unit of Morningstar gives Tesla a "medium risk" rating, according to the firms' websites.
On Wednesday (May 18), a US safety regulator opened a special crash investigation into a Tesla crash this month in California, among more than 30 crashes under investigation involving advanced driver assistance systems.
In February, a California state agency sued Tesla over allegations by black workers that the company tolerated racial discrimination at an assembly plant, adding to claims made in several other lawsuits.