How Tobacco Companies Are Crushing ESG Ratings
https://freebeacon.com/latest-news/how-tobacco-companies-are-crushing-esg-ratings/S&P Global made headlines this month when it gave Tesla, the world's largest manufacturer of electric cars, a lower environmental, social, and governance score than Philip Morris International, the maker of Marlboro cigarettes.
The electric car company, whose CEO, Elon Musk, has become a culture-war lightning rod, earned just 37 points on the 100-point scale compared with the cigarette giant's 84.
ESG ratings are supposed to guide investors, and their money, toward ethical enterprises. But Big Tobacco has lapped Tesla in the ESG ratings race more than once: Sustainalytics, a widely used ESG ratings tool, gives Tesla a worse score than Altria, one of the largest tobacco producers in the world. And the London Stock Exchange gives British American Tobacco an ESG score of 94—the third highest of any company on the exchange's top share index—while Tesla earns a middling 65.
How could cigarettes, which kill over eight million people each year, be deemed a more ethical investment than electric cars? It may have something to do with the tobacco industry's embrace of corporate progressivism.
Tobacco companies score high on ESG. They even beat Tesla. ESG is okay with something that kills 8 million people a year. ESG says no to oil, but okay with tobacco.
But ESG ratings often mask those effects. Some scores, including S&P Global's, say in fine print that they are sector-specific, which means companies are held to different standards depending on their industry. An unusually green tobacco giant could score better than an electric carmaker with an all-male board, and corporations can earn points merely by setting water reduction targets or using "diverse" suppliers.
That may be why Philip Morris International, in its 2022 ESG report, bragged about "empowering" female tobacco farmers. "Women involved in tobacco farming often face structural and cultural barriers," the report explained. "Globally, less than 15 percent of agricultural land is owned by women."
This sort of rhetoric permeates Big Tobacco's ESG reports, documents aimed at investors seeking an ethical portfolio. Imperial Brands touts its trainings on "microaggressions" and a board that is 40 percent women. Philip Morris International and British American Tobacco promote their scores on Bloomberg’s Gender Equality Index—Tesla doesn't doesn't participate—which uses self-reported data to track companies' progress toward "equitable inclusion." Altria advertises a granular list of diversity targets, including for "AAPI women." And in 2020, the company's "Corporate Responsibility" report addressed the "pandemic within the pandemic" caused by "systemic racism." It did not mention that smoking, like COVID-19, disproportionately kills black Americans.
The paeans to diversity underscore how tobacco, long considered the quintessential sin stock, could exploit ESG to become a more palatable asset, profiting off the progressivism that has swept through C-suites and corporate boards. Most ESG funds exclude tobacco from their portfolios due to its harmful health effects. But cigarette makers are hoping to change that.
