Tesla is not ESG
But then, is anything?
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🗳️ People are fighting about ESG. In the US, it’s igniting (another) partisan war, as the SEC’s climate disclosures attract Republican vitriol, new bills reveal state divergence, and proxy season yields record proposals—on both sides of the spectrum. Morningstar reports a rise in anti-ESG proposals “from politically conservative groups” who “seek the mirror image of what other proposals request, aside from business in China.” Forced labour is the one issue on which both sides agree.
🤝 It’s a starting point. After a “sharp slowdown” in Q1 flows, industry insiders are advocating greater collaboration. FT Moral Money warns climate progress demands “coalitions” between environmental and labour movements. Alison Taylor derides the “unhelpful binaries” fuelling the “misconception there’s any universal ESG,” while Anne Simpson calls time on “cute little acronyms” and “soggy alphabet soup” that disguise the tradeoffs of any realistic transition. Time to unbundle the acronym.
⚒️ Case in point: renewables. There’s big upside in the climate revolution, which will “mimic the explosion of the digital economy” says TPG’s Jim Coulter. BlackRock’s Larry Fink is just as bullish, but warns shareholders the opportunity “isn’t a straight line” (quite a wiggly line, actually). If it plays out over his estimated “30- to 50-year timeframe,” investors will need to adjust their frame of reference for financial returns. Ethical, too: The opportunities will be in energy intensive infrastructure and mining.
💸 Finally, some news closer to home: Util recently closed a multi-million dollar funding round led by Eldridge, with participation from Oxford Science Enterprises. The investment accelerates our mission to bridge progress towards the United Nations 2030 Agenda for Sustainable Development, while empowering global investors to drive social and environmental change. Read more, or get in touch to discover what we have planned—on both sides of the pond—in the year ahead.
Tesla isn’t ESG
Here’s a truism: Tesla is making headlines again. Here’s another: There’s more than one headline.
Tesla is an oft-cited ESG paradox. Forget companies that blend a pinch of shareholder trouble with a hint of stakeholder value, or vice versa. Tesla is a recipe of extremes.
Its arrhythmically beating heart, Tesla CEO Elon Musk’s dalliances with securities fraud have—probably—spawned an unofficial “Elon Musk division of the SEC” (Bloomberg, New York Times). Worse, he doesn’t care about offending the “stewards of fair play: regulators and boards,” whom he paints as “pettifogging enemies of progress” (Economist). Musk champions his brand of “unchecked,” “extraterrestrial,” “rogue,” capitalism (various).
Musk is not interested in corporate governance. Don’t like it? He can take Tesla private at $420 a share. Don't like that? He can turn the public court of opinion against you. Don’t like that? He can acquire the court of public opinion a.k.a. Twitter, which is, incidentally, growing into a stock market (tekno)kingmaker, and which has, incidentally, spawned a slew of sentiment analysis investment tools and products like the S&P Twitter Sentiment Index.
At its mission to “accelerate the world’s transition to sustainable energy,” Tesla has excelled. Its foray into EV, renewable, and battery development has, arguably, added more fuel to climate capitalism than any ‘steward of fair play’.
While regulators and boards talk about stranded assets, Tesla makes the energy transition look exciting, and lucrative, and aspirational, and, well, cool.
It’s not just the vision that sells. This week’s earnings show the product does, too. Tesla’s influence—over the direction of consumers and so also of other automakers—makes it a significant impact multiplier.
At Util, we measure the risk a company has on the world, not the risks posed by the world on a company’s enterprise value: the latter represented by traditional ESG. There’s an important place for both impact and risk, but they can yield wildly different perspectives. As below.
Tesla’s core product line, EVs, have a net positive impact on virtually every SDG. Marginal negative scores are the costs of other activities—such as manufacturing—in the vehicle production process: a process that Tesla has made its own.
Vertical integration insulates Tesla from shocks—but not from criticism.
To understand the difference between Tesla and other automakers, you have to understand not only its vision for a sustainable future but also its mastery of vertical integration. Proprietary manufacturing and software stack have been big contributors to the company’s financial success, providing a buffer against supply chain shocks.
From a traditional ESG perspective, however, it can be a disadvantage. ESG is the measure of a company’s operations, usually relative to its peers. Vehicle manufacturing and lithium mining are considered anti-ESG activities at the best of times, and particularly when compared to the operations of the ‘ESG darling’ FAANG stocks against which Tesla is, frequently, benchmarked. (Which is kind of unfair, given every peer company, auto and tech, depends on energy-intensive mining and shipping.)
But if this week’s earnings prove Tesla no automaker, they also demonstrate it’s no tech company. It’s something different—and harder to categorise.
Elon Musk renders it problematic ‘G’. And it’s no straightforward ‘E’. Then again, as Larry Fink and others have highlighted, there is no straightforward ‘E’, because the energy (and digital) transition is inherently resource intensive: a fact that has, for many companies and industries, been obscured in ESG terms—though never negated in real climate terms—by ignoring the cost of production.
All of which adds fuel to the thesis there’s no straightforward ‘ESG’.
Embodying the tradeoffs between between resource depletion and protection, company operations and outcomes, Tesla exposes the realities of fast-moving, transitional economy. Complicated. If a company can vary so wildly within single, cute little elements of a single, cute little acronym, perhaps it is time to unbundle.