Why ESG Ratings Are Under Fire: The Elon Musk Controversy

Elon Musk has repeatedly raised concerns about the credibility of Environmental, Social, and Governance (ESG) scoring systems. His latest criticism centered on a striking contradiction: Tesla, the world’s leading electric vehicle manufacturer, received an ESG score of just 37 out of 100, while Philip Morris—a tobacco company linked to millions of deaths annually—scored 84. This disparity has reignited the debate over whether ESG ratings truly measure corporate responsibility or have become merely a tool for ideologically-driven investment decisions.

The Scorecard Paradox

The numbers tell a problematic story. Tesla’s score of 37 stands in sharp contrast not only to Philip Morris but also to major fossil fuel corporations like Shell and Exxon, which both received higher ESG ratings than the EV pioneer. This creates a logical inconsistency: how can companies with documented environmental harm receive better scores than a company actively transitioning the world toward cleaner transportation? The answer, critics argue, lies in systemic flaws within ESG rating methodologies.

Who Benefits from the Current System?

Asset managers like BlackRock have championed ESG investing, directing trillions into funds filtered by high ESG scores. This has created a self-reinforcing cycle where companies with better ratings attract capital inflows regardless of their actual environmental or social impact. The perverse outcome: tobacco and oil companies gaming the system through selective disclosure and strategic reporting, sometimes called “greenwashing,” to artificially inflate their ESG scores.

The Core Argument Against ESG

Skeptics, including Musk, contend that ESG investing has become disconnected from reality. Companies causing demonstrable harm—whether through carcinogens or carbon emissions—receive validation from the ratings system while genuine innovators like Tesla struggle with lower scores. ESG proponents counter that Tesla excels on environmental metrics but underperforms in social and governance categories, explaining the overall score. Yet this defense only deepens the concern: are these subjective categories being weighted appropriately, or are they serving as convenient cover for politically motivated scoring?

The ESG debate reveals a fundamental question: Do investment ratings reflect actual sustainability, or have they become a tool for channeling capital according to pre-determined ideological preferences?