SpaceX shares tumbled to approximately $167 by Monday morning, erasing all gains from the previous week following its initial public offering earlier this month. The decline came after MSCI, a global index provider, issued the company its lowest possible Environmental, Social, and Governance (ESG) rating, a score that places the rocket manufacturer on par with the Kremlin's rating in the wake of Russia's 2022 invasion of Ukraine.
The MSCI rating, reported by the Financial Times over the weekend, was delivered a day before SpaceX's IPO, signaling early warnings to investors. The low score reflects concerns across multiple dimensions, including environmental impact, governance practices, and exposure to controversies.
Elon Musk, SpaceX's CEO, responded dismissively to the environmental grade, tweeting, “Unfortunately, electric rockets are impossible.” His reaction underscores a broader tension between his advocacy for electrification in cars and solar power and the significant environmental footprint of his space venture.
SpaceX's rockets burn large amounts of fuel and release substantial plumes of polluting gases into the stratosphere. Additionally, the company has faced violations of environmental regulations, including dumping toxic wastewater and harming ecosystems and wildlife.
Beyond the environmental score, SpaceX performed poorly in the other two ESG categories. In the “controversy” department, the company scored one out of ten, reflecting a history of issues involving Musk, such as his recent racist remarks, his relationship with deceased financier Jeffrey Epstein, and his reputation for making unfulfilled promises to investors.
Governance Concerns and Investor Warnings
In governance, SpaceX scored 3.2 out of ten, with analysts pointing out that Musk holds approximately 80 percent of the voting power, giving him substantial control over the company's direction and strategy. Frédéric Ducoulombier, program director at Edhec business school, told the Financial Times that the low ratings should not surprise anyone, describing the situation as “very close to a governance horror story for public-market investors.”
Musk has a history of clashing with ESG ratings. In 2022, Tesla was removed from the S&P 500 ESG Index due to concerns about racial discrimination, poor working conditions, and a lack of a low-carbon strategy. Musk responded at the time by accusing the index of having “lost their integrity” and later stated, “I am increasingly convinced that corporate ESG is the Devil Incarnate.”
The recent stock decline and the ESG rating highlight the challenges SpaceX faces as a public company, balancing its ambitious space exploration goals with investor expectations on sustainability and governance. As the company navigates these issues, stakeholders will be watching closely to see how it addresses the concerns raised by the rating agencies.
