Tesla Is Rejected by One Class of Investors Who Should Love It
(Bloomberg) -- If there’s any company that socially responsible investors should love, it would probably be Elon Musk’s Tesla, the clean-energy electric-car maker.
But turns out green credentials go only so far. Just 86 of about 1,200 do-gooder investment funds tracked by Bloomberg own Tesla shares. And of those, only seven count Musk’s company as a top-10 holding.
That’s much less of a warm reception than these investors have given even to Facebook Inc., which, despite a data-privacy scandal and the founder’s super-voting power, is held by 126 of those funds.
Tesla represents a quandary for the responsible investing set, which looks for companies that they deem supportive of environmental, social and governance issues, or ESG. Musk’s vision for Tesla, laid out a decade ago, was impeccable on at least one score: “to help expedite the move from a mine-and-burn hydrocarbon economy towards a solar electric economy.”
But ESG investors now worry the company’s performance on social and governance issues doesn’t justify its lofty valuation.
Investors say the board is missing expertise on manufacturing -- evident in recent production delays -- and has too many Musk cronies on the board. The company doesn’t publish a sustainability report, which investors say makes it hard to keep tabs on workforce issues such as safety. And they are concerned that Tesla can’t manage infrastructure changes ahead involving electric-vehicles and autonomous-driving cars.
The issues will move to the fore at Tesla’s annual meeting on Tuesday. State pension funds with strong socially responsible mandates, including those in Oregon and New York City, will be pushing for a governance overhaul, including opposing the reappointments of three directors.
The vote will be largely symbolic. Musk owns more than 20 percent of the shares. That means just a handful of investors including T. Rowe Price, Fidelity and technology investor Baillie Gifford & Co. control about 50 percent of the stock.
Tesla “is appealing to many investors because of its role in the transition toward a low-carbon economy,” said Dieter Waizenegger, executive director at CtW Investment Group, an activist group that has led a campaign against the directors. “You also need to have really good governance to fulfill your promise in the long term, and this company has massive problems living up to its promises.”
Tesla declined to comment.
Sustainalytics, which ranks companies on ESG issues, says Tesla is considered just an “average performer” on social and governance metrics. Many of the biggest responsible-investment mutual fund companies, such as the $26 billion Parnassus Investments and $15.3 billion Impax Asset Management, hold no Tesla shares.
Parnassus said the electric-car maker doesn’t currently meet its valuation criteria. Impax declined to comment specifically on Tesla but said it often excludes companies due to governance reasons.
Oregon’s state pension fund has concerns about workplace safety, manufacturing infrastructure and executive pay, State Treasurer Tobias Read said in an email. It is backing a proposal seeking to strip Musk of his chairman title.
“Tesla is a company of the future and we want to ensure it has a future,” he said.
Pension funds in New York City and Connecticut also plan to withhold their votes from the three directors. Amid mounting losses and production delays, "we believe that the promise of Tesla can only be realized if its board is held accountable," said Christine Shaw, chief compliance officer for the State of Connecticut’s Office of the Treasurer.
To be sure, some socially conscious investors remain committed. TIAA’s Social Choice Equity is the largest of the ESG funds holding Tesla shares. The firm controls more than 500,000 shares, according to the Bloomberg data.
“We’re used to talking to management teams that are sometimes less than forthcoming,” said Steve Liberatore, a fixed-income portfolio manager at TIAA.
And while Tesla should have more women on its board, he said that is offset by things like Musk’s stock-heavy compensation package, which aligns his interest with shareholders’.
“This is a start-up founder-led company that is rapidly growing, and there are challenges that come with that,” said Liberatore, who himself drives a Tesla.
©2018 Bloomberg L.P.