'Stop The Outrageous ESG Assessments': Why Elon Musk Calls It A 'Total Gaming Of The System'

Tesla, Inc. TSLA released its 2021 Impact Report on Friday, wherein the electric vehicle maker made the argument that current environment, social and governance (ESG) methodologies are fundamentally flawed.

ESG Needs to Measure Real-world Impact: Current ESG reporting focuses on measuring the dollar value of risk/return and does not measure the scope of positive impact on the world, the report said. This would mean investors trusting their money with ESG funds of large investment institutions would be investing in companies that worsen rather improve climate change, the leading EV maker contended.

Tesla noted in the report that companies continuing to slightly reduce emissions from manufacturing operations, while also releasing ICE vehicles, see an increase in their ESG ratings. "But, vehicle use-phase emissions, which represent 80-90% of total automotive emissions (included in Scope 3 of ESG reporting), tend to be misreported due to the use of unrealistic assumptions or not reported at all," the report noted.

Tesla chief executive officer Elon Musk chimed in with his views. In reply to a tweet which shared a story in Tesmanian on the topic, Musk called for stopping the "outrageous false assessments." The current system allows a better grade for an oil company but a bad grade for Tesla, he noted. He called out the whole thing as "total gaming of the system."

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Musk echoed a similar sentiment in April, when responding to a tweet by Ark Invest analyst Brett Winton.

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The Way Out: Tesla suggested that companies should be asked to provide real-world data, and clarify when estimates are provided instead of real-world numbers. The company noted that automakers' estimates on lifetime vehicle mileage and lifetime fuel consumption vary dramatically and almost never reflect real-world data.

The companies often have access to this data, but they don't disclose it, the EV giant added. "We need a system that evaluates: Does the growth of this company have a positive impact on the world?" Tesla said. This evolution of ESG needs to be championed by institutional investors, rating agencies, public companies and the general public, the company added.

Tesla closed Friday's session 0.87% lower at $865.65, according to Benzinga Pro.

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