“You can’t have a racial stock lawsuit and be considered a top ESG name,” she added.
Passive index funds, which collectively manage about a third of all assets invested in the stock market, must match their portfolios to the index they track. Being included in or removed from an index can affect a company’s stock price. Shares of General Electric, for example, fell 3 percent shortly after it was announced in mid-2018 that the company, an original participant in the Dow Jones industrial average, was being delisted from that index.
But the drop in Tesla’s stock price by more than 30 percent since late March was likely the result of concerns about Mr. Musk’s offer to buy Twitter and a broader shift in the way investors view technology stocks.
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S&P reported that at the end of December 2020, $65 billion in assets had been invested in funds linked to the index, the most recently available figure. That’s much smaller than the $13 trillion pegged in funds to the more widely followed S&P 500 index, of which Tesla remains a member. That $65 billion is also small compared to Tesla’s total market value of nearly $750 billion. And only part of those ESG funds’ stakes are in Tesla.
In addition, of the $65 billion linked to the ESG index, only $11 billion of that money is invested in passive index funds, which would be needed to sell their Tesla stock. The rest of the money is in funds that compare their performance to the S&P 500 ESG index. Many of those funds are actively managed by portfolio managers. Those funds are not required to sell their Tesla holdings, but they can do so so as not to stray too far from the index they are compared to by investors.
“Tesla is just not an open and closed ESG case,” said Jon Hale, who leads sustainability research at the investment fund Morningstar. “While it’s clear that the company’s product is beneficial to the environment, Tesla is now a big company and it also has an impact on employees and customers, and those issues concern ESG investors.”
Several other prominent companies were also delisted in April when S&P determined they no longer met the membership criteria. They include Chevron, Delta Air Lines, Home Depot and News Corp.
Even if emissions don’t affect the value of a company’s stock, they can have an impact on a company’s actions. “Elon Musk and Tesla may be the exception,” Hale said. “But the flip side of that is that very few companies want to be ESG laggards in today’s environment.”
