## The Paradox of ESG Ratings: Why Tobacco Companies Rank Higher Than Tesla

The debate over ESG score credibility has intensified recently, with Elon Musk raising serious questions about the methodology behind environmental, social, and governance ratings. His concerns stem from a striking data point: Philip Morris, a tobacco manufacturer, received an ESG score of 84 out of 100, while Tesla achieved only 37 out of 100. This reversal becomes even more pronounced when comparing Tesla to oil giants Shell and Exxon, both of which hold higher ESG scores than the electric vehicle leader.

**How Did We Get Here? The Mechanics of ESG Scoring**

The disconnect reveals a fundamental flaw in how ESG score systems weight different criteria. While Tesla's environmental mission—accelerating the world's transition to sustainable energy—appears straightforward, the rating agencies evaluate companies across three distinct dimensions. Tesla scores well on environmental metrics but struggles with social and governance assessments, pulling down its overall ESG score significantly. Meanwhile, tobacco companies excel in governance and social reporting, which inflates their composite ratings despite manufacturing a product responsible for millions of deaths annually.

**The Money Trail: Why This Matters**

The implications extend far beyond reputation. Major asset managers like BlackRock have channeled substantial capital toward high-ESG-rated securities, creating a financial incentive for companies to pursue better scores. However, critics argue many firms engage in greenwashing or manipulate their ESG metrics to artificially boost ratings without substantive operational changes. This has fostered an environment where the rating system itself becomes the target rather than genuine corporate responsibility.

**Why the System Fails Innovation Leaders**

Companies leading transformative change—particularly in clean energy—often sacrifice traditional ESG score rankings because they prioritize mission alignment over governance checkbox metrics. This creates perverse incentives where companies with entrenched practices in harmful industries can game the ratings more easily than disruptors like Tesla, which operates under intense scrutiny from multiple stakeholders.

The growing skepticism around ESG investing reflects a broader question: do these rating systems measure what actually matters for sustainability and long-term value, or have they become a compliance theater that rewards the wrong players?