In 2014, entrepreneur Elon Musk told an audience at the Oil and Gas Summit in Norway that the world needed to move away from their products quicker, but not immediately.
“If there were a button I could press to stop all hydrocarbon usage today, I would not press it,” he said. “It would cause civilisation to collapse. What does need to happen is, if we can, accelerate the transition towards renewables. That’s the sensible thing to do.”
Fast forward nine years, and he appeared to have a different take when commenting on the annual S&P Global ESG ratings, which account for a firm’s Environmental, Social, and Governance impact. Musk’s company, Tesla (an electric vehicle manufacturer), had come 38th, below several tobacco and oil companies. “ESG is the devil,” he raged on X, the social media platform he bought.
Why ESG is the devil ... https://t.co/uGrH0eBoMs
— Elon Musk (@elonmusk) June 14, 2023
The outburst was not out of character—for several years, he has criticised what he calls the “woke” policies of businesses—but ESG is not the same as advocating a speedier move towards renewables. Indeed, in a conversation with US President Donald Trump while the latter was campaigning for a second term last summer, Musk was consistent with his 2014 comments.
Is ESG dead?
“Vilifying oil and gas is wrong because the economy would collapse without the industry,” said the world’s richest man, before adding that “fossil fuel supply is finite, and global warming does pose some risk.” Now that Musk is fully part of Trump’s second administration, he can impact policy. So, is ESG dead?
ESG is fundamentally a framework to measure a company’s sustainability and ethical impact on the planet (the ‘E’) and on society (the ‘S’). Yet it also measures a company’s internal governance—its policies and practices from recruitment, promotion, pay, transparency, and diversity (the ‘G’). ESG ratings often inform investment choices, but with Trump’s first batch of executive orders, analysts fear it may be doomed.
Musk’s views on ESG are more nuanced than simply damning it as “the devil”. Tesla’s annual 2021 impact report noted that “current environmental, social and governance (ESG) reporting does not measure the scope of positive impact on the world. Instead, it focuses on measuring the dollar value of risk/return.” An auto manufacturer’s ESG ratings would go up if it slightly reduced emissions but continued “churning out gas guzzlers,” Tesla noted.
Two years later, the S&P Global ESG ratings appeared to validate his claim, giving Tesla a score of 32 but oil giant ExxonMobil a score of 38. Tesla, in fact, scored higher (52) than ExxonMobil (33) on the 'E'. It was its poor performance on the social ('S') and governance ('G') components that damaged its overall score.
"Drill, baby, drill!"
Trump famously summarised his second-term approach to energy security in the phrase: "Drill, baby, drill!" That suggests that oil and gas are here to stay for the next four years, at least. "Several of his executive orders will have the effect of at least trying to incentivise more oil and gas production," says Gary Dirks of Arizona State University, noting how the US was now the world's largest oil producer.
White House edicts can steer corporate direction, yet it was not just the 'E' that seemed to be impacted. Among his first executive orders was one targeting diversity, equity, and inclusion (DEI) departments in federal agencies. Although the order does not extend to the private sector, several big firms (such as Meta and Amazon) suddenly seem to have grown cool over their DEI initiatives. Some argue that this is bad for business.
A study of Fortune 500 companies by Centre Focus International in April 2024 suggested that the position of Chief Diversity Officer (CDO) had a direct positive impact on companies' performance. "The significant worth of the CDO often goes unrecognised," said the centre's Dani Monroe. "It's time for the innumerable responsibilities of this role to be defined and to showcase how DEI makes a huge difference in a company's bottom line and overall functioning."
Some of Trump's supporters have launched exchange-traded funds (ETFs) that consist of companies that have revoked their 'woke' hiring policies, but the funds' performance sometimes raises questions. For example, the God Bless America ETF (YALL) has performed more poorly so far this year than the Vanguard ESG ETF, the exclusion criteria for which includes labour and human rights violations.
Not all big tech firms have deprioritised diversity, equity, and inclusion. Microsoft, for instance, continues to see the value of its DEI initiatives. Chief executive Satya Nadella recently said that "by actively seeking diversity and embracing inclusion, we ensure our workforce represents the planet we serve, and that the products we build always meet our customers' needs".
