SpaceX and ESG: Reflections on a "scam"

On June 12, SpaceX went public. In the past, its CEO, Elon Musk—who also controls Tesla—had described environmental, social, and governance (ESG) criteria as "a scam weaponized by phony social justice warriors." Now that the company's shares are publicly traded, it's tempting to wonder how SpaceX is perceived in the world of responsible investment and ESG screening.

Let's start with rating agencies and analysts specializing in sustainability. MSCI was the first major agency to act, assigning SpaceX the lowest possible rating in June, with a particularly low score on governance and a high level of controversy. Another major player in non-financial ratings, Morningstar Sustainalytics, also placed the company in the "severe" risk category. According to Sustainalytics, the company's mix of activities—including satellite connectivity, rocket launches, national security, artificial intelligence, and social media via X—exposes it to a plethora of ESG risks.

A perfect counterexample

In Switzerland, Ethos highlighted governance issues in particular: "SpaceX is a textbook example of almost everything an investor should avoid: A dual-class share structure that guarantees the founder over 80% of the voting rights for just 42% of the share capital; a dual role as CEO and chairman that gives him full control of the rocket; and limited recourse for investors wishing to take legal action against directors or to table shareholder resolutions on governance issues."

Sasja Beslik, who publishes the ESG on a Sunday newsletter, also offered a harsh assessment: "SpaceX—valued at $750 billion, holding over $15 billion in government contracts, launching more rockets than any nation on Earth—operates in near-total ESG darkness. No sustainability report. No diversity data. No independent board. No financial disclosure. No climate strategy. No stakeholder engagement. But technical brilliance does not excuse environmental harm, workplace injuries, illegal retaliation against workers, or governance structures that concentrate absolute power in one individual."

Exclusion lists

Covalence, an ESG rating agency which also monitors the norms-based exclusion lists published by institutional investors, observes that SpaceX has already been included on several exclusion lists since its stock market flotation. This includes pension funds: AkademikerPension (Denmark; reason: human rights), PensionDanmark (Denmark: controversial business practices), Heineken Pensioenfonds (Netherlands: board decision), Achmea (Netherlands: governance structure, substandard sustainability performance).

Several asset managers have made similar exclusion decisions: Liontrust (Great Britain: CO₂ emissions, reliance on fossil fuels, governance), Nia Impact Capital (United States: governance, environment, business model).

Finally, while it has not called for SpaceX's exclusion, the Council of Institutional Investors (USA)—which comprises around fifteen pension funds, state treasurers and asset managers—has written an open letter to SpaceX to express its concerns regarding the company's governance: "Stronger governance may make initial as well as longer term share pricing more attractive and stable."

Despite its ESG profile, which is mixed to say the least, SpaceX has already attracted a host of investors and is currently one of the companies with the highest market capitalisation. The firm is held in over 3,000 investment funds, around 50 of which describe themselves as sustainable funds, according to the UK-based agency Integrum ESG.

Financial materiality

So, is ESG a scam, as Elon Musk has claimed? The SpaceX case raises some interesting questions for advocates of the sustainable economy. Firstly, one might wonder whether poor ratings, governance concerns and regulatory exclusions influence financial analysts' and investors' recommendations and decisions, and ultimately the company's share price. This raises the sensitive issue of the financial materiality of ESG factors.

The second question is whether we hope that the sustainable finance ecosystem will prompt a 'Musk-style' re-evaluation and a SpaceX-style effort to reduce its negative impacts while maximising the positive ones? The two questions are linked: if the stock market remains impervious to ESG factors, it is unlikely that Elon Musk will start making efforts to address climate, social and governance issues. And this would amount to a rejection of an ambitious and systemic vision of sustainable finance, which would remain the preserve of committed, socially conscious investors who uphold certain values—with all the nobility and limitations that this entails.

On the other hand, if market participants recognise ESG-related risks and opportunities and take these into account in their investment decisions and stock market commentary, this should prompt SpaceX and its chief executive to take action. It may even make Musk realise that ESG is not a scam but a tool for global governance linked to a condition of economic success.

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