Thought ESG was hard to define? Try its antithesis

ESG Rating Inconsistencies and Their Ideological Ends

Allen Mendenhall’s recent piece on MSCI ranking SpaceX in the same ESG tier as Russia asks a fair question: how does a rocket company advancing American innovation get scored the same as a state waging war? Unbeknownst to many, inconsistencies are common when it comes to ESG portfolios and ratings. In 2022, S&P dropped Tesla from its S&P 500 ESG Index while ExxonMobil landed in the top ten. The EV maker scored worse on an “Environmental, Social, Governance” rating than a major oil company. In fact, according to MIT Sloan’s Aggregate Confusion Project, ESG ratings from major agencies correlate at only about 0.61. Compare that to credit ratings from Moody’s and S&P, which agree 99% of the time. Companies often receive vastly different ESG rating scores from ratings providers, even ones that share a pro-ESG bias. These are the kinds of inconsistencies that led Elon Musk, CEO of the second-largest electric vehicle manufacturer in the world, to declare that ESG is a scam. Mendenhall concludes himself: the SpaceX rating shows ESG functioning less as “socially conscious investing” and more as “a mechanism for advancing ideological ends.”

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