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The hypocrisy of the ESG index?


Tesla gets kicked off the S&P ESG index… what’s really behind this move? … the importance of following data, not emotions, when investing … Louis Navellier goes live today

A feud is developing between Tesla CEO Elon Musk and the environmental, social and governance (ESG) community.

In itself, it is an interesting story, in which we will delve.

But this simmering feud also underscores the critical importance of following actions, not words. For our investment goals, this means investing based on actual cash flows – even if those flows conflict with a publicly stated objective or mission.

This all ties into a special live event happening today at 4 p.m. ET with legendary investor, Louis Navellier.

Lots to cover. Let’s go.

***The rise of “ESG” investing

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

The ESG goal of investing is to generate growth and income, but to do so in a way 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 increasingly focuses on “justice” in its various forms, ESG is a major form of investing in justice.

To provide investors with a simple way to track companies that have an ESG orientation, the S&P has 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 capitalization-weighted index that is designed to measure the performance of securities that meet sustainability criteria, while maintaining overall industry group weightings similar to those of the S&P 500.

Note that while the “S” of social and the “G” of governance are fundamental to ESG’s mission, they don’t even appear in S&P’s one-sentence definition. Instead, it focuses only on the “E” of the environment, although the word used is “sustainable”.

Now, as you probably know, the Biden administration and governments around the world are pushing for more sustainable lifestyles. One of the main initiatives is to move away from combustion engines towards electric vehicles.

Meanwhile, Tesla is the world’s largest maker of electric vehicles.

It would seem obvious that Tesla is considered one of the leading ESG stocks with a home in S&P’s ESG Index.

This is where the drama begins.

***S&P excludes Tesla from ESG index

Last week, the S&P ESG Index performed an annual rebalancing of its holdings and expelled Tesla.

The move has the effect of raising eyebrows when considering the index held by ExxonMobil and JPMorgan.

Obviously, Exxon’s activities are centered on fossil fuels, which is the source of some ESG questions. Meanwhile, environmentalists have attacked JPMorgan in the past for being the biggest lender to oil companies.

But they are there and Tesla is out.

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

The S&P 500 ESG Index recently expelled Tesla and added ExxonMobil in its annual rebalancing, raising questions about what exactly ESG is.

Interestingly, according to the 2021 Toxic Air Pollutants Index from the University of Massachusetts, which ranks the 100 largest companies based on 2019 data, Tesla ranks 22, ExxonMobil ranks 26, and Marathon Petroleum ranks 28.

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

Confused?

We all are, including Elon Musk, who now doesn’t care exactly what ESG means, since social and diversity standards were cited by S&P Global for Tesla to be booted from the S&P 500 ESG Index.

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

Source: @elonmusk

*** “What you do speaks so loudly I can’t hear what you say” – Emerson

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

From Margaret Dorn, Senior Director and Head of ESG Indices, North America, S&P Dow Jones Indices:

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

Here are more MarketWatch:

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

Tesla has been accused of racial discrimination and poor working conditions at its factory in Fremont, California.

The automaker has also been called out for its handling of the NHTSA investigation after several deaths and injuries were linked to its Autopilot vehicles.

Now, without downplaying the claims of discrimination or death/injury investigations, we must 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 because of its oil-focused business.

But as Margaret Dorn said, perhaps we need to see Exxon through a “broader ESG lens.” The same goal that launched Tesla.

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

Since Gristless than a year ago:

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

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

Beyond that, at the turn of the year, the Seattle Times pointed out that despite a record year for profits, Exxon was not raising employee wages to be consistent with inflation.

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

*** What could all this really be about?

Back to Louis:

What is essentially happening is that since ESG funds and indices have lagged significantly behind the S&P 500 this year because energy is the strongest sector, many pension funds are starting to panic and look an excuse to add energy stocks or they risk underperforming the S&P. 500 and other indices this year.

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

In fact, in my view, institutional buying pressure on energy stocks is occurring as S&P Global redefines what ESG is and pension funds are re-embracing energy stocks to “catch up” and improve their respective performance.

***As we noted at the top of today’s article Digestwhat counts are actions, not words

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

Return.

Investors need to realize this is the reality. After all, S&P dropping Tesla while keeping Exxon means a significant change in the cash flows of institutional fund managers tracking those indices. This will hurt Tesla investors and help Exxon investors.

You may wonder if Tesla deserves to be in the index or not, but in the end it doesn’t matter – follow the money.

Well, it turns out that this focus on returns, cash flow, and quantifiable financial strength is at the heart of Louis’ decades-long market approach.

No emotions, social goals or intuitions, just numbers.

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

*** How the money flow changes depending on the Great American Wealth Shift

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

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

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

I will also share one of the best stocks, I see a lot of money ’bout to roll in AND the #1 stock, I see a lot of money flowing in the near future (one you might want to avoid).

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

In MarketWatch‘s article on Musk and the ESG Index, he had an interesting line:

Investing typically uses a combination of head, heart, and gut, even though it’s not supposed to. And perhaps no market theme evokes “all the emotions” like ESG.

Invest should not involve the heart. In fact, giving a voice to the heart is one of the best ways to lose money.

This is why sticking to cold and unbiased data like money flows is a superior alternative.

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

Today at 4 p.m. ET you’ll get all the details. Click here to reserve your place.

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

Have a good evening,

Jeff Remsburg

InvestorPlace

Not all news on the site expresses the point of view of the site, but we transmit this news automatically and translate it through programmatic technology on the site and not from a human editor.