34. Elon Musk, Twitter, and ESG

Welcome back to Spend Donate Invest. When we think about the things that keep us up at night. Whether that’s climate change, or homelessness, or racism, or any other systematic oppression, we usually talk about how we can claim our power when we vote. Some of us might protest, or organize ourselves in other ways. But what about….our money?

Are there ways that we can use our money in line with some of our other values? That’s what this show is about. You can send in your letters with whatever you’ve been thinking about, and then I’ll do some research, talk to experts, and come back with some thoughts. Hopefully you’ll come across some helpful suggestions, you might laugh, you might think differently than you did before, either way, thank you for being here.

Here’s today’s letter:

I am lowkey stressed about Elon Musk and Twitter. At first when he said he wanted to buy Twitter I thought he was just trying to get the attention that he craves, but it turns out he was serious and I just read that he’s going to buy Twitter. I know on a rational level that he’s not the first billionaire to buy a media company, if that’s what Twitter is, but I feel stressed because I see Twitter as having been instrumental to some of the social causes that I care about. All of this has me thinking about something I heard on an early episode of the show, if Elon Musk becomes one of Twitter’s leaders, would that change Twitter’s ESG score?

I had a similar reaction to reading Elon’s first tweets about wanting to buy Twitter. I thought it was a distraction tactic, I had heard some whispers that maybe things weren’t going well at one of his factories, but then he persisted and then I hate that I had to learn what a poison pill is LOL. If you missed that day of the news it was where a bunch of corporate board experts were educating us all on this strategy that a board can use if they don’t want someone to get too much power- it’s called a poison pill and I hate that I’ve already said this term twice on today’s show LOL. Anyway, Elon Musk persisted, and then it seemed like boom, we woke up one day and it was announced that they reached a deal. It’s almost like all you need is a ton of money to get your way, even if everyone hates it.

Of course not everyone hates it, the Tesla bros and the Elon Musk diehard fans are super pumped. And you’re right, it’s not the first time a billionaire with questionable ethics bought a media organization. We all remember when Jeff Bezos bought the Washington Post. We all know that Rupert Murdoch owns The Wall Street Journal and Fox News along with other media companies.

Twitter is a social media company, but it’s where a lot of people go to get their news. It’s where people have coordinated with each other to rally support for movements. The Arab Spring, for example, or the Me Too movement which was sparked by Tarana Burke. Now I do want to be careful in saying that I don’t think Twitter is what enabled these movements. I think it was a tool. I’m going to link an op ed in Al Jazeera that argues this idea that the Arab Spring wouldn’t have happened without Twitter.

Twitter has it’s problems, if you’ve been on there for 5 minutes you’ve seen this. There’s a huge problem with hate speech and harassment. Oh my goodness we could talk about the misinformation on Twitter. There are a LOT of problems. It is curious that Elon Musk’s only stated goal right now is to make speech even less restricted than it is now because that’s not even on the top 5 problems that the platform is facing.

If you’ve read Elon Musk’s tweets over the years you will remember some of the wilder tweets he’s sent out- the one that I always remember is when those kids were stuck in a cave in Thailand. Do y’all remember that? There were rescue teams on the ground, diving experts, several governments that were working on this problem and the world was watching. What is that called when someone finds a way to center themselves in any situation? Main character syndrome? Well, Elon Musk volunteered to quickly build this kid sized submarine, test it in swimming pools in California and then fly them to Thailand. Of course, they didn’t end up using submarines that were invented that day to get the kids out, they ended up carrying the kids out. But where things went wild was when a British diver who was part of the rescue effort said that Musk’s submarine effort was a PR stunt. Musk tweeted that the rescue diver was a pedofile and that actually his submarines were awesome. LOL. Somebody take the Twitter app of his phone.

I’m going to include a link that has 7 tweets from Elon Musk that sent Tesla stocks on a rollercoaster.

And that brings us to the point- which is that it all sort of points to Musks’ biggest liability- he’s unreliable, he’s erratic. That’s the word you often hear to describe his leadership style. He’s erratic. Which is not good for the health of a company. And that is reflected in his company’s ESG score. We’ve talked about ESG stocks on this show a lot in the past. It stands for Environmental, Social and Governance, and nowadays, people tend to use it as shorthand to mean a socially responsible stock. You’ll hear people say, that they’re looking for ESG stocks and what they’re trying to communicate is that they might be looking at greener stocks, or stocks for companies that have a good human rights track record. 

But that’s not what ESG actually means. ESG is a risk rating. Companies get rated on how risky they are across those three categories- environmental, social and governance.

Environmental risk is about the risks they tend to take when it comes to the environment. For example, how likely are they to have an oil spill?

Social risk is about the risks they tend to take when it comes to people. So what are their labor practices? Are they taking big risks with data protection and privacy?

And then Governance is about the risk they take when it comes to how they run their company. Are they taking big risks when it comes to their board composition? How risky are they when it comes to how they pay their executives and how they do their audits?

ESG is a risk rating. It’s not how virtuous a company is. Even if you get a company with a great Environmental score which boosts their ESG score, remember, it is a risk rating. Just because a company isn’t making big risks it doesn’t mean it is actually good for the environment. It means they probably aren’t going to make a big mistake which will end up costing shareholders.

It’s not a bad idea at all to consider including stocks with great ESG ratings into your portfolio, after all, a great ESG score means the company isn’t risky, but please don’t forget it doesn’t mean much more than that.

Tesla’s ESG score is 29 which is sort of in the Medium to Medium-High range. They have a low risk score for the Environmental score- even though there are some serious concerns about the cobalt that they are using to make their batteries, but the reason that Tesla has a not great ESG score is because of the Social risk score and the Governance risk score.

The social risk score, is about their labor practices, equal opportunity protections, that sort of thing, and Tesla is known to have problems here. They don’t provide a safe environment for their employees to work in in America and there are credible reports of child labor being used in Democratic Republic of Congo as well as generally unsafe conditions in deep unstable mines. So that’s probably what is contributing to Tesla’s high social risk score.

And then for the governance score, we’ve already talked about erratic of a leader Elon Musk is, so there’s no surprise that the company is seen to have somewhat risky governance. 

All three of those components roll up into the ESG score for Tesla.

In your letter you talked about the existential dread you were feeling about Elon Musk buying Twitter. And you posed the question about what will happen to Twitter’s ESG rating.

You know, it’s hard to predict. Twitter’s environmental risk rating is similar to Tesla’s. Most of those social media companies have good environmental risk ratings. But Twitter currently has a better social risk rating and governance rating. So, it’s easy to imagine that the governance rating will probably get worse. Unclear if anything would happen to the social risk rating.

For what it’s worth, if I can send some comfort knowing that the deal might not go through in the end, and maybe Twitter isn’t quite the revolutionary tool that we pretend it is, maybe that will provide some comfort? LOL. Either way, Tesla and Twitter can provide an education on how ESG ratings work and a reminder to not get caught up in the hype. 

Thanks for joining for today’s discussion. You can always send in your questions by emailing the address in the show notes. You might be wondering about how you can support the show. There are a number of ways to do this. You can subscribe, on whatever platform you prefer for your podcasts. You can share an episode with a friend- that’s probably the biggest help you could provide right now. It turns out that’s how people discover podcasts. It’s not me telling people about the show, it’s actually you all- the listeners. You can click on the buy me a coffee link. You can also write a review for the show, or click around on your app and see if it let’s you give the show 5 stars. Thanks for your support and let’s talk again soon.

https://www.aljazeera.com/opinions/2021/1/27/the-social-media-myth-about-the-arab-spring 

https://www.vox.com/2018/7/18/17576302/elon-musk-thai-cave-rescue-submarine

https://fortune.com/2021/11/09/elon-musk-tweets-tesla-shares-hertz-funding-secured-twitter-sec-shiba-inu/#:~:text=In%20May%20last%20year%2C%20Musk,The%20shares%20promptly%20slumped%2010%25.