Supposedly ethical investment rates cigarettes more than Teslas!


S&P Global made headlines this month when it gave Tesla, the world’s largest manufacturer of electric cars, a lower environmental, social, and governance score than Philip Morris International, the maker of Marlboro cigarettes.

How could cigarettes, which kill over eight million people each year, be deemed a more ethical investment than electric cars? It may have something to do with the tobacco industry’s embrace of corporate progressivism.

ESG ratings are supposed to guide investors, and their money, toward ethical enterprises. But Big Tobacco has lapped Tesla in the ESG ratings race more than once: Sustainalytics, a widely used ESG ratings tool, gives Tesla a worse score than Altria, one of the largest tobacco producers in the world. And the London Stock Exchange gives British American Tobacco an ESG score of 94—the third highest of any company on the exchange’s top share index—while Tesla earns a middling 65.

Companies like Altria have gone out of their way to emphasize the diversity of their corporate boards and the breadth of their social justice initiatives, from funding minority businesses to promoting transgender women in sports. But Tesla, whose executives are overwhelmingly white men, has resisted that bandwagon, going so far as to fire its top LGBT diversity officer last year.

The “S” in ESG typically includes diversity programs. Philip Morris International, which in 2021 advertised a partnership with “African data scientists,” got a social score of 84 from S&P Global. Tesla got a measly 20.

The contrast highlights the hazards of a movement that lumps pressing health and environmental issues in with ideological fads. Early ESG efforts were laser-focused on “sin stocks”—companies whose core business was deemed immoral—including tobacco. But as ESG investing has ballooned, so has the number of variables used in ESG ratings, which now encompass everything from labor practices and carbon pledges to diversity trainings and human rights. That has created countless opportunities to game the system, experts say, and lets even the most sordid companies score points—and investors—by toeing the progressive line.

“ESG company ratings often measure abstract woke goals that have no rational connection to companies’ actual businesses,” said Boyden Gray & Associates managing partner Jonathan Berry, who sued NASDAQ last year over its diversity requirements for corporate boards. “Companies score ‘points’ mainly by demonstrating their compliance with the latest dogmas issued by the DEI complex.”

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