The ESG Paradox: Why Tobacco Giants Rate Higher Than Tesla

The contradiction at the heart of modern ESG investing just became impossible to ignore. When a tobacco company outscores the world’s leading electric vehicle manufacturer on environmental, social, and governance metrics, something has gone fundamentally wrong with the system.

Elon Musk recently highlighted this absurdity on Twitter, pointing out that Philip Morris—a company whose products kill millions annually—received an ESG score of 84 out of 100, while Tesla scored just 37. The disparity doesn’t stop there. Traditional fossil fuel giants Shell and Exxon also placed above Tesla in ESG rankings, creating a perverse outcome where companies driving climate change appear more “responsible” than those actively reducing emissions.

The System Under Fire

This contradiction raises serious questions about how ESG scores are actually calculated. Critics argue that the rating system has become detached from reality, favoring companies that excel at corporate theater while penalizing genuine innovation. The growth of ESG-focused funds, backed by major asset managers, has created massive capital flows toward higher-rated companies—but those companies may have achieved their ratings through strategic messaging rather than genuine impact.

The term “greenwashing” has become synonymous with ESG gaming. Companies discover they can boost their ESG score by tweaking governance structures or publishing sustainability reports, without meaningfully changing their business practices or environmental footprint. It’s a system that rewards appearance over substance.

Why Tesla Gets Dinged

ESG proponents defend the methodology by noting that Tesla performs well on environmental metrics but struggles with social and governance factors. Labor practices and executive compensation packages allegedly drag down the overall ESG score. But for skeptics, this explanation misses the forest for the trees: a company actively replacing fossil fuels with clean energy should naturally rank above companies profiting from tobacco or oil.

The Broader Debate

This isn’t Musk’s first public criticism of ESG. As ESG investing becomes more influential in capital allocation, the disconnect between ESG scores and actual environmental or social impact has become harder to defend. The question now is whether the system can reform itself or whether it will continue rewarding the wrong companies for the wrong reasons.