Tesla’s ESG credentials have once again been thrust into the spotlight following the electric vehicle manufacturer’s $1.5bn investment in bitcoin earlier this month.
Elon Musk’s company has always divided opinion when being assessed from an ESG perspective as highlighted by the vast disparity of ratings between the different index providers.
MSCI currently gives Tesla a high ESG score based on its contribution to environmental solutions while FTSE Russell and Sustainalytics score the company far lower due to its weak governance.
The EV manufacturer’s latest headline-grabbing investment has certainly given index providers plenty of thought around the company’s environmental score, in particular.
As has been well documented, the mining of bitcoin is extremely energy intensive and generates huge amounts of carbon emissions.
Estimates from the University of Cambridge predict bitcoin uses approximately 116 terawatt hours a year which is more than the Netherlands and just shy of Pakistan, a country with a population of 217 million.
Added to this, bitcoin mining generates as much carbon dioxide as New Zealand and uses as much electricity as Chile, according to Digiconomist, further highlighting the impact cryptocurrencies can have on the environment.
While many proponents argue the mining process is sometimes powered by renewables, this remains a small proportion with a heavy concentration of bitcoin mining taking place in China which is powered by burning coal.
As Martin Walker, director of banking and finance at the Center for Evidence-Based Management, said: “Cryptocurrencies and ESG principles are far from compatible and any mainstream fund manager or pension fund seeking to place a portion of their portfolio in crypto risks severely undermining their ESG credentials.”
With MSCI’s ‘A’ rating certainly under fire, this could have a major impact on the make-up of a number of ESG ETFs listed in Europe.
Highlighting this, Tesla currently holds the top weighting in the MSCI USA SRI index at 6.7% which a number of ETFs track, the largest being the $6bn iShares MSCI USA SRI UCITS ETF (SUAS).
Athanasios Psarofagis, ETF analyst at Bloomberg Intelligence, said there are a number of factors MSCI needs to take into account from both an environmental and social perspective.
“The biggest focus is on the ‘S’, especially around fraud, consumer protection and could the anonymous nature of transactions facility criminal activity and the like, and that will not help the rankings,” Psarofagis stressed.
“From an environmental standpoint, they will need to look at the impact of mining and its energy efficiency.”