- Australian fund manager BetaShares has removed Tesla from its sustainability ETF, citing ethical concerns.
- Chief investment officer Louis Crous told Business Insider Australia that the EV maker failed its screening due to a number of reputation issues and controversies.
- Those include the environmental impact of its German Gigafactory and links to forced labour in Xinjiang.
- Visit Business Insider Australia’s homepage for more stories.
Tesla may be the darling of Wall Street and Silicon Valley alike, but it has failed to impress one Australian fund manager.
The $750 billion automaker has been unceremoniously dropped from ETHI, Betashare’s sustainability exchange-traded fund (ETF), after the manager grew tired of the company’s ongoing controversies.
Chief investment officer Louis Crous told Business Insider Australia that the decision, made as part of the fund’s annual review, was based on Tesla’s ethical failures.
“Tesla is still definitely a carbon leader…but it has fallen foul of our [environmental, social and governance] screens which resulted in its removal,” Crous said.
While Crous revealed that the $17.5 billion fund manager has been monitoring ETHI’s Tesla exposure for a while, it decided to dump the $60 million stake as “new evidence came to light” and “controversies and reputation issues” mounted. Three concerns in particular were deemed too significant to ignore.
“During May last year at the height of the COVID pandemic, Tesla reopened its factory in Fremont, California, despite the orders of the local authorities, resulting in quite a large number of COVID cases,” Crous said.
“New reports have indicated that there was a significantly larger outbreak than was previously reported, so we have numbers from one to 50 COVID cases related to the factory.”
The incident came after founder Elon Musk slammed the stay-at-home orders as “facist” in a quarterly call with investors, eventually reopening the factory in defiance.
The second major issue came in the form of the environmental impacts of another factory, this one halfway across the world in Germany.
“German media reports that Tesla’s factory in Brandenburg will consume about 3.6 million cubic metres of water per year, which is roughly around 30% of the total water in the region,” Crous said. “Some experts believe this will lead to restrictions on drinking water.”
Those concerns haven’t stopped Tesla from charging on, with the Gigafactory almost ready to open, pending government approval.
In yet another corner of the planet, Tesla has been allegedly tied, as other large tech companies have, to labour exploitation.
“In December 2020, NGO the Tech Transparency Project alleged Tesla has been linked through its supply chain to Lens Technology, which in turn is facing allegations of directly benefiting form the use of state-sponsored forced labour provided by Uighurs and other minority Muslim groups in China,” Crous said.
“At the end of the day, these are things we don’t really want to compromise on.”
The decision makes BetaShares one of the first funds to call time on Tesla, a stock that has consistently been one of the most traded stocks on Wall Street, including by Australian investors.
Certainly, its record in the last year or so has helped make huge profits for many, including BetaShares’ investors, as its share price has soared six-fold since March 202 – leading some to warn of a possible bubble.
As controversies stack up however, funds may begin to feel greater pressure to see past profits and the aura of a founder who has garnered a cult-like following.
While Crous emphasised that the line wasn’t drawn due to Musk alone, he does acknowledge that Musk’s power within the company means his behaviour “does make a difference”.
Musk has repeatedly clashed with the SEC, after the US financial regulator alleged he had publicly misled investors about a deal to take the company private. While they later came to a settlement, they only ended up in court months later after Musk allegedly breached it.
BetaShares revealed that despite trying to engage with Tesla on its own concerns, it “has not received any response”.
Curiously the decision means Tesla has been removed from ETHI while Toyota, the world’s largest maker of combustion engine vehicles, is still held by the sustainability fund. Despite its chequered environmental record and history of greenwashing, the Japanese automaker continues to fit the fund’s criteria.
“Toyota will remain in place because they haven’t been screened out for other reasons and that’s the only way you can look at it,” Crous said. “Now, on the surface it might not seem like it represents the portfolio from that perspective, but this fund is more than just an environmental product offering.”
Not that Tesla couldn’t mount a comeback, with Crous adding the fund hasn’t written off Musk altogether.
“If Tesla can come back and address some of these concerns, either practically or by responding to engagement, then we would absolutely revaluate.”
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