Takeaways

• SpaceX received the lowest possible ESG rating from MSCI, drawing attention to how sustainability ratings are calculated.
• Critics argue ESG scores can unfairly penalize companies in emissions-intensive industries, while supporters say the ratings focus on financial risk management.
• The controversy has renewed calls for greater transparency and consistency in ESG ratings used by investors.

SpaceX has found itself at the centre of a growing debate about the value and reliability of ESG ratings after receiving the lowest possible score from global ratings provider MSCI just before its public market debut.

On June 11, MSCI assigned SpaceX a CCC ESG rating, the bottom category in its rating system. The assessment was released a day before the aerospace company’s US$75 billion initial public offering (IPO). According to MSCI, the rating reflects significant exposure to environmental, social, and governance risks and concerns over how those risks are managed.

The company also received a low score in MSCI’s controversies assessment and was flagged for ongoing serious controversies. Its governance performance was rated particularly weak, adding to concerns among some investors.

Read More: Sustainalytics ESG Risk Rating: A Guide for Responsible Investing

The SpaceX ESG Rating quickly became a talking point because the same CCC label is also used for the lowest-rated entities in MSCI’s sovereign ratings framework. This has led some critics to question whether such ratings provide a meaningful picture of a company’s overall impact and performance.

SpaceX founder and CEO Elon Musk dismissed the rating on social media, remarking that “electric rockets are impossible.” His comments echoed earlier criticism of ESG frameworks after Tesla was removed from a major ESG index in 2022. Musk has repeatedly argued that ESG systems often fail to recognize the broader value of technological innovation.

Supporters of Musk argue that many ESG Ratings disadvantage businesses operating in sectors that are essential for technological progress but naturally have larger environmental footprints. However, MSCI maintains that its methodology is not designed to determine whether a company benefits society. Instead, it evaluates how effectively a company manages sustainability-related risks that could affect its financial performance compared with industry peers.

One of the key concerns behind the MSCI ESG Rating is corporate governance. Analysts have pointed to SpaceX’s dual-class share structure, which gives Musk significant voting control. Critics say such arrangements can reduce shareholder influence and limit accountability.

The debate arrives at a time when regulators and investors are paying closer attention to Sustainability Scores. In Europe, stricter disclosure requirements and new rules governing ESG rating providers are being introduced to improve transparency and consistency across the industry.

Questions about the reliability of ESG assessments are not new. Academic studies have shown that different rating agencies often assign very different scores to the same company. Researchers have found that disagreements typically stem from differences in measurement methods and the issues each provider chooses to evaluate.

Despite the controversy, the low rating is unlikely to prevent SpaceX from joining major stock market indices. Large IPOs are often added to key benchmarks under accelerated inclusion rules, which can attract significant investment from passive funds.

Also Read: Understanding ESG Metrics: Measuring Environmental, Social, and Governance Performance

For now, investors are closely watching SpaceX’s next steps as a public company. Its first earnings report is expected later this year, while reports suggest the company may also pursue a bond sale worth up to US$20 billion to support growth in its artificial intelligence and space-related businesses.

As discussions around Sustainable Investing continue to evolve, the SpaceX case is likely to remain a prominent example of the challenges involved in measuring corporate sustainability through a single score.

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Source: Eco-Business