The ESG Rating Paradox: Why Tobacco Giants Score Higher Than Tesla

The ESG rating system is facing intense scrutiny after data revealed a striking contradiction at its core. According to recent reports, Philip Morris—a major tobacco manufacturer—achieved an ESG score of 84 out of 100, while Tesla, the world’s leading electric vehicle innovator, scored only 37. This disparity has sparked renewed criticism from Elon Musk and raised broader questions about the validity of environmental, social, and governance benchmarks.

The anomaly extends beyond tobacco companies. Energy giants Shell and Exxon, both legacy fossil fuel corporations with significant carbon footprints, also ranked above Tesla in ESG rating assessments. These counterintuitive results highlight a fundamental flaw in how the ESG rating framework evaluates corporate performance.

How ESG Ratings Create Perverse Incentives

As ESG-focused investment vehicles have gained momentum—with asset managers like Blackrock channeling trillions into ESG-compliant stocks—companies have increasingly engineered their metrics to game the system. The result is a phenomenon known as “greenwashing,” where firms adopt superficial environmental practices while maintaining harmful operations, all to artificially inflate their ESG ratings.

This mechanism creates a troubling inverse outcome: companies engaged in activities with documented public health and environmental harm achieve higher scores than those actively transforming industries toward sustainability.

Conflicting Perspectives on ESG Investment Merit

Critics argue that the ESG rating system is fundamentally broken, driven by ideological rather than objective criteria. They point out that tobacco, which causes millions of preventable deaths annually, should never outrank an automotive manufacturer revolutionizing transportation through electrification.

ESG advocates counter that Tesla’s lower overall score reflects poor performance in social and governance categories, despite strong environmental metrics. They maintain that a holistic evaluation requires balancing multiple dimensions, not just environmental factors.

The debate underscores a crucial tension: as institutional capital increasingly flows toward ESG-designated assets, the integrity of the rating methodology becomes more consequential for market pricing and capital allocation across the global economy.