Tesla has found itself dropped from S&P 500 ESG index, leading CEO Elon Musk to call into question the integrity of the tracking index. The S&P stated that the reason for the move was due to deficiencies in the electric vehicle company's own low-carbon strategy, as well as recent allegations of racial discrimination and poor working conditions. Anthony Sassine, CFA, a senior investment strategist at KraneShares, joined Cheddar's Opening Bell to discuss, noting possible issues with the S&P methodology but also pointing out deficiencies in Musk's company. "I think Tesla has some issues to resolve," he said. "We definitely do not stand behind any of the racial inequalities that are happening at the company's factory, and also we would like to see more diversity at the top."

Opening Bell

Tesla's Ouster From S&P 500 ESG Index About More Than Carbon Footprint

for more on this. Let's bring in Anthony 16 cf. A senior investment strategist at crane share Anthony, I was talking about this a little bit at the top of the show, but can you break down what it means to be a part of this index and to now get kicked out of it essentially. Good morning. Yeah, it's it's a big deal at least from a sentiment sentiment uh, side on the investment side, it's not a big impact. So the S and P 500 they have E. F. G. Index, they have this index where they include all the different companies that in their opinion, according to their methodology, um, uh, comply with their E. S. And G. And now after assessment they do an assessment on an annual basis. And after the recent assessment they concluded that Tesla should be kicked out of the index which actually tracks close to 11 billion in passive investment which is not a big deal, it's less than a billion flows into Tesla which they can do in one day. But from a sentimental perspective, it's really important. However, it highlights issues on both sides of the spectrum here. Well, there are issues on the Tesla side. I think this is also highlighting issues on the methodology that SNP is following to do that. And I want to talk about both of those sides and start with kind of on the E. S. G. Index side. Right. The head of E. S. G. Indexes for S and P 500 I think Margaret Dorn has said this while Tesla may be playing its part in taking fuel powered cars off the road. It has fallen behind its peers when examined through a much wider E. S. G. Lens, why has Tesla fallen behind its peers? Do you think this assessment? Um, you know, is fair and then you break down a bit more of the reason for the booth, you know? Absolutely. I think this statement is fair, but the key word here is fell against its peers, right? What appears? So we're talking about the automotive peers. So the way SMP does their analysis is they do it on a sector basis. Right? So in a way that kind of treating carbon emissions differently, like for fossil fuel for oil and gas companies versus automative companies versus other companies in different sectors, whereas carbon emission for me is carbon emissions, right? No matter how you do it and where you do it. So, so when you kind of rank Tesla with its own peers who are mostly elected vehicle companies that are doing the right thing and you have issues like they highlighted with regards to racial uh inequality and and you know, and and lack of diversity at the top of their board of directors, then yes, it would fall behind kind of their peers, but I think it would still be ahead of many other companies in different sectors. So I think that's the key here to that point. Elon must obviously twitter as he does on any issue that he has and really pointed out a little bit that I want to pull up a tweet from Elon musk essentially condemning this decision, calling E. S. G. S scam. But even also in this tweet here pointing out that Exxon made the list and Tesla did not investor, even Kathy would also chiming in calling the decision ridiculous. Can you just discuss from their perspective that concern again the other side of the coin here in terms of pointing out some issues around this methodology that may have more broader implications for I think more broader es. G indexes and really insight there. Absolutely. So great shares were very committed to climate, very committed to USC and we're committed to all three letters. Right? The environmental E the social s and the government's G. Right? So so I really think that we need kind of a universal formula for A S. G. I think there are some uh you know we can update that formula. It hasn't been or definition hasn't been looked at in a little while and there are different issues just not just with how we rank things. Also when we look at different metals as well like lithium and cobalt, they're they're classified low on on on the LG environmental but if you look at the life cycle, these metals are kind of participating in the move to energy transition. So I agree with them in that regard. I may not agree with the methodology of Elon musk. I think Tesla has some issues to resolve. We definitely do not stand behind any of the racial inequalities that are happening at the, at the company's factory. And also we would like to see more diversity at the top. If you look at their executive team, they're all, you know, white men. If you look at the board of directors, there's only two women, one is, uh, you know, minority. So, so I think they could do a lot more on that space to kind of bring up not only the environmental benefits but also the social and governance benefits that, that these companies are offering. You know, when we look at Tesla right now the stock has taken a pretty significant hit chairs down 40% year to date. I only got about 30 seconds here, but I'm just curious what do you think this means more broadly for tesla stock as it's already under a bit of pressure? It's definitely gonna put the stock under a little more pressure from negative sentiment perspective. You know, especially with all the tweets that we're seeing from Elon musk. This is kind of reminiscent of what he did kind of two years ago. This is a concern, but also there are other wider issues that are happening at the same time. The inflation, the rotation from growth to value for the long term. Tesla is a great company is always, you know, it's, it's, it's, it's doing his job and the energy transition. I'm not worried about the long term, but in the short term, I think Elon musk needs to, uh, you know, hopefully get his act together. Yeah. And it's really fascinating kind of insight here. Tesla down what 30% year to date really lost the crown from going from that $1 trillion market cap now, but 730 something billion dollars. Really thank you for your time. Anthony's has seen Cf, a senior investment strategist at Crane's chair.