“You can’t have an ethnic equity lawsuit and the top ESG name counts,” she added.
Passive index funds, which collectively direct one-third of all assets invested in the stock market, need to match their portfolio with the index they track. Inclusion or exclusion from the index can affect a company’s share price. Shares of General Electric, for example, fell 3 percent in mid-2018 after it was announced that a parent company of the Dow Jones Industrial Average was being removed from the index.
But a more than 30 percent drop in Tesla’s share price since the end of March was the result of Mr. Concern. Musk’s offer to buy Twitter and a radical change in how investors view technology stocks.
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S&P reports that અંત 65 billion was invested in funds linked to the index at the end of December 2020, the latest figures available. That’s much smaller than the $ 13 trillion in funds linked to the more widely followed S&P 500 index, of which Tesla is a member. That $ 65 billion is also small compared to Tesla’s overall market value of about $ 750 billion. And only part of the holding of those ESG funds is in Tesla.
What’s more, out of the $ 65 billion tied to the ESG index, only $ 11 billion of that money has been invested in passive index funds, which would be required to sell their Tesla stake. The rest of the money is in funds that benchmark their performance against the S&P 500 ESG index. Many of these funds are actively managed by the portfolio manager. Those funds do not need to sell their Tesla holdings, but they can do so so that they do not stray too far from the index they are compared to by investors.
“Tesla is not just an open-end-shut ESG case,” said John Hale, who directs sustainability research at the mutual fund tracking firm Morningstar. “While it is clear that the company’s product is beneficial to the environment, Tesla is now a large company and it also affects employees and customers, and those issues concern ESG investors.”
Some other leading companies were also excluded from the index in April when the S&P determined that they did not meet the membership criteria. These include Chevron, Delta Air Lines, Home Depot and News Corp.
If the ejection does not affect the company’s share price, it can still affect the company’s actions. “Elon Musk and Tesla may be the exception,” Mr. Hale said. “But the other side of it is that very few companies want to stay behind ESG in the current environment.”