According to the CEO of a tech firm specializing in the provision of software to assess sustainable practices, the meaning of ESG may have been misinterpreted by the CEO of Musk's company.
Rebeca Minguela spoke about the confusion surrounding what ESG actually means in an interview with CNBC.
She said that many investors think it's only focused on climate impact. Not just a lot of investors, even Musk wrote about it.
The S&P 500 removed the electric-vehicle maker from the index. In reply, Musk said that ESG was a scam that had been weaponized.
The S&P 500 rated ExxonMobil the tenth best company in the world for environment, social and governance. One of the oil and gas supermajors is listed.
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Like its CEO, the company has weighed in on the debate. It said in its Impact Report that the current evaluation methodologies are flawed. ESG needs to evolve to measure real-world impact.
The scope of positive impact on the world is not measured by current environmental, social and governance reporting. The dollar value of risk is the focus.
Individual investors may not know that their money can be used to buy shares of companies that make climate change worse.
During her interview with CNBC, Minguela argued that Musk's reaction pointed to a bigger issue around people's opinions of what ESG actually stands for.
She said that Elon Musk might have thought that the climate impact was being measured. That is why he was worried about Exxon being in the index.
That is a good sign that Musk is not aware of what he is talking about. If that happens to him, that will happen to many other investors as well.
They need tools and a better understanding of what ESG really means and what the different frameworks are trying to measure in order to be successful.
CNBC asked for comment on Minguela's remarks before they were published, but the company did not reply.
There are many different definitions of what ESG really means. Both the social and governance strands are important, even though a lot of attention is paid to the environment.
According to the British Business Bank, ESG is a collective term for a business's impact on the environment and society as well as how robust and transparent its governance is in terms of company leadership, executive pay, audits, internal controls, and shareholder rights.
Due to mounting concerns over social issues and the environment, discussions surrounding ESG and sustainable living have attracted attention.
Corporations around the world are trying to burnish their credentials by announcing net-zero goals and plans to reduce their environmental footprints.
In some quarters, however, there is significant skepticism about many of the claims businesses make, given that concrete details are hard to come by and the dates for achieving these targets are not always readily available.
That often leads to accusations of greenwashing, a term environmental campaign group Greenpeace UK has called a " PR tactic" used "to make a company or product appear eco-friendly without meaningfully reducing its environmental impact."
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