The ESG Paradox: Why Tobacco Giants Rank Higher Than Tesla

The flaws in environmental, social and governance (ESG) ratings have been thrust into the spotlight as Elon Musk publicly questioned the logic behind a system that awards major tobacco and oil corporations higher scores than Tesla, the world’s leading electric vehicle manufacturer. The numbers tell a striking story: Philip Morris received an ESG score of 84 out of 100, while Tesla languished at 37. Similarly, fossil fuel majors Shell and Exxon both outranked the EV pioneer in ESG assessments.

The Scoring Contradiction

This contradiction exposes a fundamental problem with how ESG investments are evaluated. Tesla, which has fundamentally transformed the automotive industry toward electrification and sustainability, receives a mediocre score, while a company whose products cause millions of deaths annually sits atop the ESG hierarchy. Musk isn’t the only critic questioning this methodology. Investors and analysts have long pointed out that ESG ratings often fail to capture what truly matters about a company’s impact on society and the planet.

Money Talks in ESG Flows

The stakes are high. As asset managers like BlackRock continue to channel substantial capital into high-ESG-rated stocks, the investment landscape has shifted dramatically. Companies now have powerful financial incentives to game the rating system. This has sparked a wave of “greenwashing”—where corporations adopt superficial sustainability measures to boost their scores without making substantive changes. The resulting inflows reward those who play the rating game best, not necessarily those delivering the most genuine environmental or social benefit.

Defenders of ESG Push Back

Proponents of ESG argue the criticism misses the full picture. They contend that while Tesla excels in environmental metrics, it falls short in social and governance assessments, explaining its lower composite score. According to this view, a balanced approach to ESG evaluation is more sophisticated than simply rewarding environmental leaders.

The Bigger Question

What this debate reveals is that ESG systems—despite their aspirations to create better corporate behavior—may instead be creating perverse incentives. Whether you’re learning about ESG investing through an esg course or managing billions in assets, the core question remains: are we measuring what actually matters?

Musk’s criticism reflects a broader skepticism about whether ESG has become another mechanism for financial engineering rather than genuine sustainability—a conversation that will likely intensify as more investors demand transparency in how ESG ratings are constructed.