Is tobacco ESG-friendlier than Tesla? Funds, investors don’t think so
ESG ratings have taken a hit amid the controversy about tobacco companies outperforming Tesla, but those questionable grades appear to have little meaning for funds and investors.
Last month, Tesla CEO Elon Musk criticized the notion of such ratings after The Washington Free Beacon published a report showing big tobacco doing well when it comes to ESG credentials while the electric car and battery company struggled. That report came after Philip Morris International CEO Jacek Olczak touted the company’s social responsibility initiatives to the Financial Times, telling the paper he believes that the tobacco company is on track to becoming an ESG-friendly stock.
Numerous tobacco companies in recent years have focused on vaping and other “smoke-free” nicotine products, claiming that those cigarette alternatives are <a href=«https://www.altria.com/moving-beyond-smoking/reduce-the-harm-of-tobacco-products?src=» https: target="_blank" rel=«noreferrer noopener»>less harmful
to consumers. Companies also appear to have focused more on diversity, equity and inclusion, which in some cases has helped their ESG scores.
But if tobacco companies truly are more socially responsible, that trend might be lost on investors. Those who focus on ESG mostly want nothing to do with big tobacco.
In the U.S., just eight of more than 430 sustainability-themed mutual funds or ETFs have 1% or more of their total net assets allocated to stocks with any meaningful connection to tobacco, according to data that Morningstar Direct provided to InvestmentNews. Most of those funds hold stocks in companies with some retail sales of cigarettes as a small percentage of their business.
“It can be surprising to see sustainable funds with tobacco exposure, since
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