The ESG Scoring Paradox: Why Socially Responsible Investing Companies Are Challenging the System

The environmental, social, and governance (ESG) evaluation framework has become increasingly contentious as major asset managers like Blackrock channel capital into higher-rated securities. Yet a striking contradiction has emerged within this system: tobacco manufacturer Philip Morris secured an ESG score of 84, while electric vehicle pioneer Tesla received merely 37 out of 100. Similarly, fossil fuel giants Shell and Exxon achieved ratings superior to Tesla’s, prompting heightened scrutiny of how ESG scores are calculated.

The Rating Paradox in Socially Responsible Investing

This apparent inversion of values raises fundamental questions about ESG methodology. Socially responsible investing companies and asset managers have positioned themselves as advocates for sustainable capitalism, yet their scoring mechanisms seem to reward corporations with arguably contradictory track records. Tobacco-linked products claim millions of lives annually, and traditional energy firms have documented histories of climate impact—circumstances that theoretically conflict with genuine environmental and social responsibility.

Gaming the System: From Greenwashing to Rating Manipulation

Critics argue that many corporations strategically engage in what’s known as “greenwashing”—presenting inflated social and governance credentials to artificially elevate their ESG rankings. This opportunistic approach to ratings inflation has created perverse incentives, where companies prioritize optics over substantive impact. Blackrock and comparable institutions directing vast capital flows toward higher-ranked assets inadvertently amplify this incentive structure.

The Pushback Against ESG Standards

Elon Musk has vocally challenged this framework, questioning whether tobacco companies and oil majors genuinely merit superior scores compared to Tesla, an organization spearheading the mainstream adoption of electric vehicles at competitive price points. ESG supporters counter that Tesla’s low score reflects weaknesses in social and governance dimensions despite environmental strengths—suggesting the company must improve labor practices and board diversity to achieve higher overall ratings.

Yet for skeptics and industry observers, this explanation falls short. If socially responsible investing companies and mechanisms truly prioritize measurable positive impact, why do industries demonstrably harmful to public health and climate stability command stronger ratings than transformative players reshaping transportation?

The debate underscores a critical tension: whether ESG represents a meaningful evolution in capital allocation, or a well-intentioned system susceptible to manipulation and misalignment with its stated principles.