Original, independent, thought leadership
Tesla index article 12-2020-image

Tesla now eligible for addition to the S&P 500 ESG Index

The Bottom Line: Tesla, already a member of some leading US equity ESG indices, is now eligible for addition to the S&P 500 ESG Index.

Home » Investing Ideas » Tesla now eligible for addition to the S&P 500 ESG Index

Share This Article:

The Bottom Line: Tesla, already a member of some leading US equity ESG indices, is now eligible for addition to the S&P 500 ESG Index.

Tesla now eligible for addition to the S&P 500 ESG Index

Tesla was in the news again, this time in connection with the addition of the stock as a member of the S&P 500 Index, effective on Monday, December 21st. Given its market value of around $659 billion, the stock entered the benchmark as a top 10 constituent along with tech giants such as Microsoft, Apple, Amazon, Alphabet and Facebook that together make up 23.49% of the S&P 500 . Tesla’s entry into the S&P 500 index, at 1.56% of the index weight as of December 22, 2020, means that the stock is likely to be added to positions in US large cap portfolios that pursue environmental, social and governance (ESG) mandates. Also, Tesla is also now eligible for consideration as a constituent in the S&P 500 ESG Index. Should this take effect at the next rebalancing or sooner provided the company passes S&P’s ESG screens, the S&P 500 ESG will follow a trail already blazed by two leading ESG indexers, namely MSCI and FTSE. These two firms have already incorporated Tesla into their US large to-mid cap indices but the security is less commonly held among the largest ESG large cap equity funds. This is now likely to change.

S&P 500 ESG Index
A relative newcomer, the index was launched in January 2019. It is a broad-based index designed to measure the performance of securities meeting S&P’s sustainability criteria while maintaining similar overall industry group weights in the S&P 500. Constituents of the index must be part of the S&P 500 and are qualified based on ESG scoring or excluded due to engagement in certain business activities or controversies. The top 10 holdings, which still exclude Tesla, account for 35.49% of the index weight. Refer to Table 1. As the index is rebalanced annually, effective after the close of business day of April, Tesla would ordinarily not be added until April 30, 2021. That said, Tesla could be added earlier via an extraordinary rebalancing in line of the one that occurred in September of this year when S&P made the decision to exit thermal coal companies.

The index, based on backcasting, has beaten the S&P 500 in each of the last 1-year, 3-years, 5-years and 10 years to November 30 with positive performance differentials ranging from 28 bps to 2.16%. Refer to Chart 1.

MSCI USA ESG Leaders Index
The index tracks large and mid-cap companies in the US with high ESG scores relative to their sector peers, and is used as the reference index for the $2.7 billion ESG-oriented passively managed iShares ESG MSCI USA Leaders ETF. As of November 30, 2020, Tesla accounted for 3.26% of the index weight that together with technology giants Microsoft Corp. Alphabet C and A, represent a total weight of 19.7% within the index’s top 10 holdings that on a combined basis account for 32.56% of the index weight. Refer to Table 1. Unlike the other two leading securities market ESG indices, the MSCI USA ESG Leaders Index is the only one that has been underperforming its parent index, the MSCI USA Index, on a long-term basis. The index has lagged over the 1-year, 3-year, 5-year and 10-year intervals to November 30 by a range from 8 bps to 2.1%. At the same time, the MSCI USA ESG Leaders has outperformed the S&P 500 Index, except over the 10-year interval. Refer to Chart 1.

FTSE4Good US Select Index
The index is comprised of US companies that are screened for certain environmental, social, and corporate governance criteria and specifically excludes stocks of certain companies various industries such as adult entertainment, alcohol, tobacco, weapons, fossil fuels, gambling, and nuclear power, to name just a few. Included as an index member since the end of 2016, Tesla is one of the top ten index members and accounts for 1.55% of the benchmark’s weight along with nine other companies that make up 29.7% of the benchmark. Refer to Table 1.

FTSE4Good US Select Index serves as the underlying benchmark for the largest sustainable passively managed mutual fund, the $10.0 billion Vanguard FTSE Social Index Fund. The index has outperformed its underlying benchmark over the 1-year, 3-year and 5-year time intervals by a range from 1.1% to 2.1%. Refer to Chart 1.

Sustainable (SUSTAIN) Large Cap Equity Index
The index, initiated as of June 30, 2017 with data back to December 31, 2016, tracks the total return performance of the ten largest actively managed large cap domestic equity mutual funds benchmarked against the S&P 500 Index that employ a sustainable investing strategy beyond absolute reliance on exclusionary practices for religious, ethical or social reasons. While methodologies vary, qualifying funds must actively apply environmental, social and governance criteria to their investment processes and decision making. In tandem with their ESG integration strategy, funds may also employ exclusionary strategies along with impact oriented investment approaches as well as shareholder advocacy.

Across the top ten funds that comprise the index, exposure to Tesla is limited to an average weight of 0.21%. Only two funds reported any exposure to Tesla. The largest of these funds and falling within its top 10 holdings at 1.32% of assets, is the $6.0 billion TIAA-CREF Social Choice Equity Fund. The second only Tesla holding was reported by the almost $18 billion JPMorgan US Equity Fund, with a 0.82% position that the fund has held since August of this year. Refer to Table 1.

The addition of Tesla into the S&P 500 Index will likely also trigger additions to current Tesla holdings and/or the introduction of first-time positions.

The SUSTAIN index has beaten the S&P 500 in each of the last 1-year and 3-years with positive performance differentials ranged from 1.8% over the trailing 1-year and 23 bps over the trailing 3-year intervals. Refer to Chart 1.



Premium Articles Access Priority Support 1 Fixed Price

Free Trial
30 Day

Access to All Data No Credit Card Required Cancel Any Time


Access to Premium Articles Priority Support Save 25%

Sign up to free newsletters.

By submitting this form, you are consenting to receive marketing emails from: . You can revoke your consent to receive emails at any time by using the SafeUnsubscribe® link, found at the bottom of every email. Emails are serviced by Constant Contact


Research and analysis to keep sustainable investors up to-date on a broad range of topics that include trends and developments in sustainable investing and sustainable finance, regulatory updates, performance results and considerations, investing through index funds and actively managed portfolios, asset allocation updates, expenses, ESG ratings and data, company and product news, green, social and sustainable bonds, green bond funds as well as reporting and disclosure practices, to name just a few.

A continuously updated Funds Directory is also available to investors.  This is intended to become a comprehensive listing of sustainable mutual funds, ETFs and other investment products along with a description of their sustainable investing approaches as set out in fund prospectuses and related regulatory filings.

Getting started

Many questions have surfaced in recent years regarding sustainable and ESG investing.  Here, investors and financial intermediaries will find materials that describe the various approaches to sustainable investing and their implementation.  While sustainable investing approaches vary and they have thus far defied universally accepted definitions, many practitioners agree that they fall into the following broad categories:  Values-based investing, investing via exclusions, impact investing, thematic investments and ESG integration.  In conjunction with each of these approaches, investors may also adopt various issuer engagement procedures and proxy voting practices.  That said, sustainable investing approaches will continue to evolve.

In addition to periodic updates regarding sustainable investing and how this form of investing is evolving, investors and financial intermediaries interested in implementing a sustainable investing approach will also find source materials that cover basic investing themes as well as asset allocation tactics.

Inesting ideas

Thoughts and ideas targeting sustainable investing strategies executed through various registered and non-registered sustainable investment funds and products such as mutual funds, Exchange Traded Funds (ETFs), Exchange Traded Notes (ETNs), closed-end funds, Real Estate Investment Trusts (REITs) and Unit Investment Trusts (UITs). Coverage extends to investment management firms as well as fund groups. 

Independent source for sustainable investment management company research, analysis, opinions and sustainable fund disclosure assessments