When Standard and Poor’s (S&P) threw Tesla out of its ESG index, a list of companies dedicated to “excelling” in “environmental, social, and governance” issues, the charges were wide-ranging. Pointing to allegations of racial discrimination and poor working conditions in one of its factories, and how it handled deaths linked to its “full self-driving” system, Tesla was unofficially excommunicated from ESG investing. Unsurprisingly, Elon Musk quickly returned fire, calling ESG “a scam”.
Given that the electric-vehicle company was replaced in the index by the oil refiner Phillips 66, perhaps America’s most famous eco-warrior has a point. The ESG industry’s sole purpose seems to be listing unsustainable companies its naughty list, so that Wall Street can earn increased fees from ESG-friendly stocks to clients. When there are oil companies like ExxonMobil being given higher sustainability ratings than EV companies like Tesla, it’s fair to say that it’s a scam.
A read of this week’s headlines reveals as much. First, the Financial Times ran a piece soberly entitled “Energy crisis prompts ESG rethink on oil and gas”, which illustrated how corporations and governments were balancing their “green ambitions” with the “new imperatives of energy security”. Joining that was OilPrice.com with the headline: “Even ESG Funds Are Now Buying Big Oil Stocks,” and a Reuters opinion columnists who said, “ESG is more of a muddle than a fiddle,” noting the “lack of clarity over its goals”.
Independent media is more forthcoming about ESG’s deficiencies. Breaking Points podcast went into great detail on recent government raids on Deutsche Bank and Goldman Sachs over alleged greenwashing. And in addition to the big banks, politicians have been playing fast and loose with the label too. Earlier this month, the EU suddenly called natural gas a “green” source of energy.
Unsurprisingly, the ESG label has now become another culture war weapon used to discredit political adversaries. Used by the Right as a critique of the woke movement, and by the Left as a way to denounce greenwashing in companies within sectors it deems “naughty” (like oil and gas), the term is now redundant.
But the real tragedy is that upcoming ESG measures will continue to fuel increased scepticism around climate change and those broadcasting the potential dangers in good faith. Unfortunately for them, all the initiatives acting against climate change appear deceitful and misleading to sceptics, so they will likely not be persuaded. ESG is a scam — we would do well to discard the label and its attendant maladies.
Greg Barker is an independent journalist and quant, who also writes under the name Concoda. You can find him on Substack and Twitter at @concodanomics.