Why Tesla disdains ESG

Although Tesla emits more than 2.5 million tons of carbon dioxide across the value chain each year, it still earns nearly $1.5 billion a year from selling carbon credits.

Many U.S. states control vehicle emissions, and those fuel vehicle manufacturers cannot meet regulatory requirements and must purchase emission credits; And those energy-efficient car manufacturers, or electric vehicle manufacturers, have a large number of savings in emission credits, which form emission credits in a certain period of time and can be sold to those fuel car manufacturers.

Tesla is the world's largest producer of electric vehicles, generating significant emission savings. Tesla relied on selling carbon credits to achieve four consecutive quarters of profitability for the first time two years ago. Tesla's emissions credit sales over the past 3 years were $986 million in 2019, $1.58 billion in 2020 and $1.46 billion in 2021.

According to Tesla's 2021 Impact Report, Tesla's operating carbon emissions, i.e. Scope 1 and Scope 2, total 588,000 tons.

The SEC has required companies to disclose their Scope 1 and Scope 2 greenhouse gas emissions in their annual reports, as well as annual disclosure of emission reduction plans. However, there was no requirement to disclose data for Scope 3.

Scope 1 emissions are direct emissions, i.e. direct greenhouse gas emissions from fuel combustion activities and physicochemical production processes directly controlled by enterprises. Scope 2 emissions are indirect emissions, which means greenhouse gas emissions from energy purchased by enterprises, including electricity, heat, steam and air conditioning. Scope 3 emissions are indirect emissions from activities upstream and downstream of the value chain.

Tesla also disclosed emissions from its Scope 3 segment, which adds 1,954,000 tons in Scope 3, bringing the total tesla value chain to 2,542,000 tons of CO2 equivalent.

But Tesla doesn't want to tell a popular "carbon neutral" and "net zero carbon" story.

Tesla, unlike many American and tech giants, has set itself a carbon neutrality goal and drawn a roadmap. It also does not release ESG reports like mainstream multinationals.

It publishes an impact report once a year.

It insists that replacing fuel vehicles with electric vehicles and replacing fossil fuels with renewable energy is the solution to climate change.

Musk wants to tell another story: Tesla's green electricity has exceeded all the electricity consumed in the production of cars and the use of cars.

Its solar companies have historically generated a total of 25.39 TWh of electricity, while all the cars Tesla makes and the electricity it consumes total 25.27 TWh. As the proportion of renewable electricity in the grid increases, more and more fuel vehicles are replaced by electric vehicles, such as Tesla will produce 20 million electric vehicles by 2030, and the influence of electric vehicles will become increasingly large.

Tesla will also use its highly vertically integrated model to directly control the upstream of the battery supply chain and obtain carbon emissions data from its supply chain partners.

Tesla also plans that each factory will have a battery material recycling solution that will be reused locally for cell manufacturing. Its long-term goal is to achieve the cost of recycled battery materials lower than the cost of newly mined battery materials.

At the beginning of the report, Tesla stated a very different logic from ESG: the current ESG evaluation method is fundamentally flawed, and ESG needs to be developed to measure its real impact on the world.

Tesla opened the report with a sharp criticism of the ESG system:

Currently, ESG measures investment risk

Current environmental, social and governance (ESG) reports do not measure positive impact on the world. Instead, it focuses on measuring the monetary value of risk/reward.

Individual investors who entrust their money to ESG funds at large investment institutions may not yet realize that their money can be used to buy stocks in companies that make climate change worse than improve.

Measuring the impact of the automotive industry is a clear example. It can be argued that the greater the share of electric vehicles sold by automakers, the higher the ESG score. However, this is not the case. As long as companies continue to make small noises to reduce emissions from their manufacturing processes and introduce fuel-intensive vehicles, their ESG ratings are likely to rise.

Including Scope 3 in the ESG report, emissions from the car use phase account for 80-90% of all emissions from the car, but this is often falsely reported because of unrealistic assumptions, or not reported at all.

It's not hard to see why some oil and gas companies are higher on the "environmental impact" list than Tesla.

One of the most striking aspects of the ESG rating system is that a company's track record of climate change seems to have very little, or even a factor, in promoting its position in ESG.

Bloomberg Businessweek "ESG Illusion"

ESG should be the company's influence

We need to create a system that measures and focuses on the positive impact on our planet so that individual investors are no longer confused and can choose to support companies that are bringing positive change.

On the product side, companies should be required to use real-world data as much as possible, making a distinction if it is estimating rather than providing real-world data. For example, the "use phase" emissions of a car account for a large part of the vehicle's entire life cycle. Automakers' estimates of full-life-cycle range and full-life-cycle fuel consumption vary widely and almost completely fail to reflect real-world data. Automakers often get this data, but they don't disclose it.

Employees of a company should be treated fairly and have a system in place to prevent any discrimination; they can work with confidence and receive a reasonable return; and if the employer has a good business, their return will naturally increase.

Many ESG assess "whether this ESG issue is affecting the company's profitability." We need a system that assesses " whether the growth of this company has positively affected the world" and "is it?"

The development of ESG should be guided by investment institutions, rating agencies, listed companies and the public. Since the world needs real positive influence, we will not refer to the ESG system in this report. Instead, our theme is influence.

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