- Key Initiatives
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- Big Data for Better Business Seminar Series
- FinTech Innovation Salon
- ESG and Finance Seminar Series
- No Free Lunch Seminar Series
- Transparency Conference: At What Speed and Cost?
- Systemic Risk Conferences
- Networking Receptions
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- 2011-2014 Annual Program for Financial Studies Conferences
Do Socially Conscious Investors Get What They Pay For? A Case Study on Tesla, Inc.
The objective of the three-hour class, as part of the Program for Financial Studies’ “Big Data for Better Business” seminar series, is to collectively probe whether socially responsible investors get what they pay for. To make the conversation somewhat concrete, we will use Tesla as a case study. Research has documented that ESG mutual funds charge more by way of fees than comparable funds do (see https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3609056). Tesla’s market capitalization has increased eight-fold in the year ended January 25, 2021, in anticipation of its addition to the S&P 500 index. Most of this run-up is attributable to Tesla’s status as a poster child for ESG.
In the class, we “kick the tires” and “look under the hood” to examine what socially conscious investors get for the large fees and valuation premiums they bestow on stocks perceived to be high ESG firms.
We will be guided by the following over-arching questions in this quest:
1. What is the firm's purpose and how does that fit with its vision and strategy with respect to sustainability?
2. Does the firm really walk the talk with respect to its commitment to sustainability?
To address this question, it will be useful to consider specific metrics related to E/S and G. The following page reproduces an ESG score card suggested by the World Economic Forum (WEF) and endorsed by the Big Four accounting firms. It might be useful to look through Tesla’s latest available sustainability report for 2019 (https://www.tesla.com/ns_videos/2019-tesla-impact-report.pdf) as a starting point. Admittedly, there is a lot in the scorecard. You are welcome to team up with other class participants to hunt as a pack instead of flying solo into this endeavor.
Additional resources (made optional to avoid inundating with your hundreds of pages of material) include Tesla’s latest available 10-K for the year ended December 31, 2019 (https://tesla.gcs-web.com/static-files/07bfcb70-aba1-4a27-af09-4f101678320c) and its latest available proxy statement (https://ir.tesla.com/_flysystem/s3/sec/000156459020040039/tsla-defa14a_20200922-gen_0.pdf)
Finally, it might be useful to pull up ratings of Tesla’s ESG performance put out by commonly followed vendors such as MSCI, or Asset4 (accessible via Refinitiv) or Sustainalytics or whatever ratings you can find on a Bloomberg terminal. Ask yourself whether your assessment of Tesla’s ESG performance gels with that reflected in these vendor ratings. If not, probe a bit more to understand why. What exactly are these raters rating?
I hope to leave with you an evidence-based perspective on whether firms’ words related to ESG matches their deeds.ESG SCORECARD DRAWN FROM THE WORLD ECONOMIC FORUM’S WORK ON SUSTAINABILITY MEASUREMENT (https://www.weforum.org/whitepapers/toward-common-metrics-and-consistent-reporting-of-sustainable-value-creation)