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Elon Musk and Tesla are correct in their criticism of ESG. The Index criteria can be easily misleading, which is used by unscrupulous investment firms that mislead their customers. The investigation against Deutsche Bank shows that there is a lot of room for improvement on ESG.
On May 31, German law enforcement officials raided the offices of Deutsche Bank on suspicion of the fraudulent advertising of sustainable investment funds at its DWS unit, according to Fortune. The investigation revolves around allegations made by a former DWS manager that the retail wealth management business engages in “greenwashing” where environmental, social, and governance (ESG) investments are sold under false claims.
As a spokesperson for the public prosecutor told Fortune’s Christiaan Hetzner: “The allegations are that DWS has been advertising so-called ESG financial products for sale as being particularly green and sustainable when they actually weren't. In the course of our investigations we've found evidence that could support allegations of prospectus fraud.”
This case is a good example of how ESG can be easily used to cheat, and the main reason lies in the index itself, which provides tools for this. It also perfectly demonstrated that Tesla's call to large funds to stop misleading investors and change their ESG valuation of companies is extremely relevant and needs to be implemented immediately.
Recently, Tesla published the 2021 Impact Report, which raised the issue of ESG. The manufacturer explained that the current ESG reports do not measure the magnitude of the positive impact on the world, which is the biggest mistake. Instead, it focuses on measuring the dollar value of risk/return. The problem is that individual investors who trust their money to ESG funds of large investment institutions may not be aware that they can be used to buy shares in companies that worsen rather than improve climate change.
Although the ESG criteria appeared as a response to environmental degradation, global warming, and growing economic inequality between rich and poor countries, they were, in fact, about something else entirely. Hiding behind the mask of a contribution to the environment, ESG only gave an additional tool for investment firms to deceive their clients. Tesla's recent removal from the list only confirms this fact. While Tesla, the world's biggest environmental company-contributor, has been dropped from the index, such an oil and gas giant polluter as Exxon Mobile is still on the list, ranking eighth.
Mark Tinker, chief investment officer at Toscafund Hong Kong, said to Reuters that Elon Musk “rightly pointed out” that societal and corporate governance considerations are being used “for political driven cancelling” and that a company's contribution to the environment can also “mean what you want it to.”
“The whole thing is very subjective,” Tinker said.
© 2022, Eva Fox | Tesmanian. All rights reserved.
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