According to news reports, "Tesla CEO Elon Musk blasted ESG investing as a 'a scam' after his electric vehicle company was booted from a top index of socially responsible companies over labor practice concerns. " Musk also stated that "that Standard and Poors.. lost its 'credibility' by pulling Tesla from its index of companies that meet environmental, social and governance (ESG) criteria, while leaving oil giant #exxonmobil on the list. "
He is, of course, correct. S&P was fined $1.5 billion for falsifying mortgage security ratings in the years leading up to the 2008 financial crisis. Their credibility, such as it is, has been available for purchase for decades. We know what they are.
Mr. Musk's complaints are driven by self interest, however, not by concern for the well being of society. As such, his concerns are as invalid as S&P's ESG ratings. Note that this does not mean S&P is wrong about Tesla.
ESG data is easily manipulated, without consequence. As we stated in 2015 testimony to the Norwegian Pension Fund,
"As the market value of environmental factors continues to grow, companies and investment managers will engage in fraudulent practices related to these factors. These practices will range from simple falsification of environmental and financial records to more sophisticated, but no less fraudulent methods related to 'environmental ratings.' "
There are no laws establishing penalties for falsifying ESG (and few for bond) ratings. This is why Tesla, S&P and Wells Fargo continue to operate. (Wells Fargo allegedly falsified diversity data. ) The problem is not falsification. It is the lack of ethics that has come to dominate business practices in the US. We'd note that this applies to Mr. Musk's bid for #Twitter, as well.
In point of fact, Mr. Musk may do better to focus on other issues, like finding $44 billion - he is now legally obligated to buy Twitter. He agreed to pay $54.20 a share. On May 19th, it was trading at $36. Also, the day before Musk announced his bid for Twitter, Tesla stock was $1,022 per share.
On May 20th, it was $660.