Elon Musk pauses and looks down as he speaks during a press conference at SpaceX's Starbase facility near Boca Chica Village in South Texas on February 10, 2022. - Billionaire entrepreneur Elon Musk delivered an eagerly-awaited update on SpaceX's Starship, a prototype rocket the company is developing for crewed interplanetary exploration.
Photo: Jim Watson/AFP via Getty Images

Elon is mad about ESG ratings. He has a point.

Protocol Climate

Friends, compatriots, climate people. Hello, and welcome to Thursday’s Protocol Climate newsletter. Today, we’re looking at Elon Musk’s ESG gripes and Europe’s ambitious offshore wind plan. Prepare to be blown away. (Oof, sorry.)

It was only a matter of time

Elon Musk took a break from buying Twitter and ranting about bots on Wednesday to get mad about something else.

The S&P decided to boot Tesla from its S&P 500 ESG list. Elon is characteristically tweeting through it, calling ESG ratings an “outrageous scam.” The thing is, he’s kind of right.

Tesla got the boot, but Exxon is still on the list. We know this because Musk tweeted about that, too. (Don’t worry, I fact-checked it.) The reason Exxon is there is because S&P ESG considers virtually all of the companies in the S&P 500 for inclusion, with a few exceptions.

  • If you’re a company that sells tobacco or manufactures cluster mines, nuclear bombs or other “controversial weapons,” you can’t get on the list at all. That feels like the bare minimum.
  • Beyond that, S&P looks at how the ESG scores of companies stack up. Companies with scores in the bottom 5% of the United Nations Global Compact scoring system are ineligible. And if a company’s S&P DJI ESG score is in the bottom 25% of its industry group, it’s also not allowed to be on the list.
  • So, in effect, the S&P 500 ESG list is made up of the least-bad companies from each industry group. That’s how you end up with Exxon — which falls in the S&P 500’s oil and gas group — getting a slot. Sure, it’s the fourth-biggest source of investor-owned carbon pollution to ever operate on Earth. Sure, its climate plan is trash. But it’s fine on some social initiatives, and better than most of the alternatives in the oil and gas bucket, so it gets a spot.
  • Exxon isn’t the only headscratcher on the list when it comes to the “E” of ESG. Coca-Cola and PepsiCo, the world’s two biggest plastic polluters, are on the list. McDonald’s, a purveyor of billions of climate-frying beef burgers that’s also been linked to Amazon deforestation, is also on the list. And so is JPMorgan Chase, the biggest fossil fuel financer in the world.
  • Tesla, the company most responsible for the EV revolution, is not.

There are some obvious reasons for Tesla’s slide. While it’s sold millions of EVs and played a role in spurring new and traditional automakers to dive into the market, the company hasn’t exactly been a great corporate citizen.

  • S&P senior director for ESG indices Margaret Dorn wrote in a blog post that Tesla was booted in the annual S&P 500 ESG rebalance because its score hasn’t improved, while competitors’ have.
  • The company’s lack of a climate plan, allegations of discrimination and racism, and the ongoing NHTSA investigation into fatal crashes and accidents were all cited as contributing to the company’s exodus from the list.

It’s not just Elon dunking on ESG rankings. He’s been on an anti-ESG crusade for the past few months, which honestly makes it amusing that he’s mad that Tesla got booted from an ESG list. But he’s not alone. A major investigation by Bloomberg last year looked at MSCI, another ESG certifier, and found it often upgraded companies for doing next to nothing on climate issues. (The same was true for the “S” and “G” parts of ESG.)

  • The story noted that the “most striking feature of the system is how rarely a company’s record on climate change seems to get in the way of its climb up the ESG ladder — or even to factor at all.”
  • Indeed, Exxon shows up in a number of ESG funds as do many of the other big polluters in the S&P 500 ESG list. So, too, do tech companies with strong climate plans.
  • Contrary to Elon’s tweets, though, the rankings aren’t there to promote a “leftist agenda” or “wacktivism.” They’re there to uphold capitalism and stave off regulation. MSCI CEO Henry Fernandez told Bloomberg his firm rankings are “100% a defense of the free-enterprise, capitalistic system and has nothing to do with, you know, socialism or zealousness or any of that.”

On climate at least, they seem to be failing in that regard. Regulators in the U.S. and European Union are working on more stringent disclosure rules that could help climate tech companies and those with legit climate plans get a fairer shake.

But they’re still a ways away, and are largely lacking strong enforcement mechanisms for companies that fail to meet their climate goals. Can’t wait to see what Elon has to tweet about those.

— Brian Kahn (email | twitter)

European gusts

On Wednesday, Denmark, Germany, Belgium and the Netherlands committed to increasing their collective offshore wind capacity tenfold by 2050, a move that comes as Europe as a whole tries to wean itself off Russian oil and gas.

The North Sea is already an offshore wind powerhouse. The EU currently has about 15 gigawatts of offshore wind in the energy mix, but Wednesday’s commitment would bring this total to a whopping 150 gigawatts of capacity.

  • If they can pull it off, that would be enough power to satisfy the needs of 230 million European households; the 27 EU countries currently have roughly 195 million households, which means a little extra to electrify, well, everything else.
  • In 2020, the European Commission announced a strategy to increase the continent’s offshore wind capacity to 300 gigawatts by 2050, 50% of which would be met by the planned North Sea development.

Don’t worry: There’s a 2030 target too. The countries have also agreed to install 65 gigawatts of offshore wind by the end of the decade. (It’s almost like the European leaders read our advice to set interim targets to keep climate and energy pledges on track.)

  • This is more than double the Biden administration’s stated goal for the U.S. of 30 gigawatts by the end of the decade.

This comes on the heels of another big energy announcement. The EU's executive arm also proposed a nearly 300 billion euro ($315 billion) package — dubbed REPowerEU — on Wednesday.

  • Intended to help Europe reduce its dependence on Russian fossil fuels (including the possibility of banning oil imports entirely), the package includes 56 billion euros for energy efficiency and 86 billion euros for renewables.
Lisa Martine Jenkins (email | twitter)

A MESSAGE FROM SAP

Did you know that 97% of the greenest companies in the world run SAP? Join SAP for its flagship Sapphire event virtually – it’s free! Learn how to transform your business, and how to approach the balancing act between supporting sustainability and driving efficiency and revenue goals for your company.

Learn more

Make it rain

Infinitum Electric, which develops smaller, lighter, quieter electric motors using air-core technology, raised $80m in series D funding led by Riverstone Holdings.

Ingredient and product sustainability data platform HowGood promises to expand with the $12.5 million it raised in a funding round led by Titan Grove.

Belgian solid-state lithium battery cell developer Solithor raised 10 million euros ($10.5 million) in seed funding, led by imec.xpand.

UtilityAPI, which provides data-sharing software for electric utilities, raised $10 million in series A funding, led by Aligned Climate Capital.

Shade doesn’t have to be an impediment to solar generation, at least according to Optivolt, a developer of solar technology focused on shaded areas. The startup raised $8.2 million in seed funding, led by Atlas Innovate.

The sustainability-focused equity firm Generation Investment Management, which was co-founded by Al Gore, raised $1.7 billion for its fourth and largest-ever fund, bringing its total assets under management to $36 billion.

Ara Partners, a private equity firm focused on industrial decarbonization investments, made an $80 million equity commitment to the battery recycling startup Blue Whale Materials.

Still more battery news: The lithium-ion storage battery maker Dragonfly Energy agreed to go public via a SPAC deal with Chardan NexTech Acquisition 2 Corp, with a $500 million implied valuation.

And for some acquisition news: The private equity firm KKR has agreed to buy the British power company ContourGlobal, which operates both thermal and renewable power plants globally, for 1.75 billion pounds ($2.16 billion). The move comes as KKR tries to expand its renewable energy presence.

Meanwhile, Global Infrastructure Partners is set to buy the renewable energy company Atlas Renewable Energy, which operates in Latin America, from the private equity firm Actis; the deal is valued at nearly $2 billion.

Hot links

The U.S. hit a renewable energy milestone, with 200 gigawatts of carbon-free energy capacity. Now, it just needs to pick up the pace.

Yet another twist in the solar probe drama: BloombergNEF researchers said that Auxin Solar misinterpreted BNEF research in bolstering its petition to the Commerce Department for solar tariffs.

Uber is doubling down on EVs. It’s expanding its “comfort” options to include an electric vehicle option, as well as creating a new hub for EV drivers.

EV registrations in the U.S. increased 60% in the first quarter of this year. (Finally, some good news about the DMV.) Four of the top 10 models registered were Teslas. TBD on when Elon will tweet about it.

Brian Kahn and Lisa Martine Jenkins

A MESSAGE FROM SAP

Did you know that 97% of the greenest companies in the world run SAP? Join SAP for its flagship Sapphire event virtually – it’s free! Learn how to transform your business, and how to approach the balancing act between supporting sustainability and driving efficiency and revenue goals for your company.

Learn more

Thanks for reading! As ever, you can send any and all feedback to climate@protocol.com. See you next week!

Note: Protocol is owned by Axel Springer, in which KKR has a large minority stake.

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