Tesla: From 0 to 62 and everywhere in between

16 Jun 2021 | The G7 backs mandatory disclosures, the green transition causes mineral overstretch, and ESG ETFs begin to evolve. Plus, why is the sustainability picture so complicated for Tesla?

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✅ The G7 has backed mandatory climate disclosures, endorsing TCFD and IASB, while recognising the need for more far-reaching reporting frameworks: particularly in terms of impact, nature-based and beneficial ownership reporting.

💸 457 investors managing $41trn released the 2021 Global Investor Statement to Governments on the Climate Crisis, which urges world governments to act on climate policy and warns laggards will miss out on trillions of dollars in investment.

🏦 The BoE published its Climate Biennial Exploratory Scenario (CBES) to stress test banks and insurers to assess their exposures to climate risks. The stress test will be used to inform policy, rather than to set capital requirements.

👩💻 What's next for ESG ETFs? Make it personal. Investors want digital content and information, optionality and personalisation, says Morningstar's Gavin Corr, who says 'one-stop-shop' products will yield to pluralistic, democratic and modular funds.

🏁 In the race to net zero, nobody wins until everyone finishes. Annual clean energy investment in developing economies must increase sevenfold by the end of the decade if the world is to reach net zero emissions by 2050, says the IEA.

🍃 The transition to green energy is less than 10% complete, but there are signs of overstretch. The Economist reports £178bn flowed into green funds in Q1 2021, but the price of minerals has soared. The solution lies with government action.

🎨 Unlike in public markets, VCs don't need a definitive set of rules for measuring and tracking impact—but that doesn't mean it's not important. Allowing funds to create their own rules will encourage diverse, innovative approaches, reports Sifted.

📈 ESG ETFs have become the top choice for Chinese institutions. A survey revealed 80% of investors plan to allocate up to 20% of their assets to the sustainable funds over the next five years.

Util updates

🗞️ Huge inflows into clean energy ETFs recently caused ructions in equity markets. Writing in Environmental Finance, we look at what that means.
🏆 Our CEO, Patrick Wood Uribe, was selected for CEO Monthly's 2021 CEO of the Year programme for his work with Util(!).

Tesla: Zero to 62 and everywhere in between

At the end of May, Tesla finally found its way into the S&P 500 ESG Index. Then, last week, it was dropped from a different sustainability portfolio.

Relative to the S&P 500 ESG Index and the mammoth assets that track it, Australian fund manager BetaShares's capital allocation call may not appear groundbreaking. But the firm's decision to eschew Tesla from its sustainability ETF is symbolic.

CIO Louis Crous told Business Insider that the EV maker—typically a mainstay in sustainability funds—was dropped because of "ethical failures," including the environmental impact of its factories and links to forced labour. "Tesla is still definitely a carbon leader," he added, " but it has fallen foul of our screens, which resulted in its removal."

The world's a complicated place. Tesla is an excellent reminder of that fact.

On the face of it, EVs are environmentally friendly—or at the very least, more friendly than their gas guzzling counterparts. Less carbon intensive they may be, but lithium mining, a requisite for EV batteries, is a dirty business: particularly against SDG 6 (Clean Water and Sanitation). Almost 2,000,000 litres of water are needed to produce a single ton of lithium, with mining activities a leading cause of groundwater depletion, soil contamination and other environmental degradation in some parts of the world.

Those 'parts of the world' are concentrated in a handful of developing countries, which perhaps accounts for why EVs are so frequently perceived as 'clean'. Most EV consumers live in industrialised nations. But the dirty aspects of the production process are no less devastating just because they're out of sight.

There are other reasons why Tesla isn't a clear-cut sustainability success story: Elon Musk's on-again, off-again relationship with Bitcoin, or his decision to reopen factories amid a global pandemic, or myriad other labour and ethical issues for which Tesla has come under fire. That doesn't make it a failure, either. Like every other industry and company, product and portfolio, Tesla is neither a saint nor a sinner. It's complicated.

Efforts to paint Tesla as the former speak to our tendency to oversimplify stocks, as well as sustainable investing as a whole. Particularly in the developed world, investors fall into the habit of reading 'sustainable' as 'green'—which it is not.

As Patrick recently told Climate Action: "The idea of 'green' investment has gathered momentum, but sustainability isn't just about choosing 'green' companies. It's about managing the constant trade-offs between positive and negative value creation.

"Almost everything in the world comes at some cost, and sustainability is about allowing growth in one domain without destroying others, and ultimately about creating more value in the world than we remove, for all stakeholders and resources."

And that can't be done without better data on the positive and negative impact on the world of companies, products, and activities.

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