“This is a warning shot”: what businesses must learn from Tesla’s ESG crisis

Earlier this month, Swedish insurance and pension group Folksam announced that it had divested its entire holdings in Tesla, worth approximately $160 million USD.

This decision was directly linked to Tesla’s ongoing refusal to sign a collective bargaining agreement with Swedish trade unions, notably IF Metall, which represents mechanics and other workers in Sweden’s automotive sector.

The divestment follows nearly 18 months of escalating industrial conflict in Sweden, sparked by Tesla’s non-recognition of union demands and its refusal to enter into a collective agreement — a cornerstone of Swedish labour relations.

Folksam said it had tried to influence the carmaker through proposals submitted to the company’s annual general meeting for two years in a row.

“But this isn’t just about one Scandinavian fund offloading a fraction of a percent - it’s a warning shot.”

Head of asset management and sustainability Marcus Blomberg added: “Unfortunately, no improvement has been seen, and a decision has therefore been made to divest the holding.”

Said Sadykhov, director of strategy and business development at Metal Expert and an executive adviser to several boards commented on LinkedIn: “Folksam, which manages over $80 billion in assets, sold its $160 million stake in Tesla after twice attempting to push the company toward collective bargaining agreements for Swedish mechanics. With no progress from Tesla, led by Elon Musk, Folksam walked away.

“But this isn’t just about one Scandinavian fund offloading a fraction of a percent - it’s a warning shot. In ESG-focused markets like the Nordics, labour standards are non-negotiable, and investors are willing to take a stand.

“If others follow Folksam’s lead, Tesla could face mounting pressure in Europe - not just from unions, but from capital seeking companies that align with their values.”

Key lessons for businesses and risk managers

Folksam’s decision highlights how social issues - including labour rights - are not peripheral concerns for boards.

Instead, they are core to ESG investment frameworks - and investors can and will pull the plug on organisations that they cannot work with. Organisations that fail to engage, or to demonstrate progress in meeting ESG targets, will suffer.

Firms perceived as unresponsive or dismissive of investor concerns may find themselves isolated, especially in socially conscious markets like Scandinavia.

Folksam had previously attempted to influence Tesla’s behaviour via shareholder proposals - without success. This reflects a broader lesson: shareholder engagement only works if management is willing to listen.

Tesla’s operations in Sweden — a relatively small market — have become the focus of international attention, highlighting how labour disputes can escalate into broader reputational crises. Tesla’s refusal to adapt has resulted in sustained reputational harm and operational disruptions.

“This isn’t just a finance story; it’s a reputational and strategic one.”

Jennifer Kaplan, an Adjunct Professor who teaches Marketing and Communications for Social Impact at Presidio Graduate School, said: “Tesla had successfully branded itself as a climate leader, but is now failing to connect that sustainability narrative to its broader corporate behaviour, including how it treats workers and manages the company.

“That disconnect eroded trust and created reputational risk, which in turn became financial risk. This isn’t just a finance story; it’s a reputational and strategic one. For businesses, and especially for Chief Risk Officers, the message is clear: ESG is a core risk management function.”

In fact, Folksam’s decision highlights a growing shift in how global stakeholders are defining and acting on ESG priorities.

Kaplan explains: “For a while now, criticisms of Tesla’s governance—on a range of issues from widespread race discrimination and harassment to excessive Board compensation—has eroded its social license to operate, particularly in markets where stakeholder capitalism is the norm.

“Now, further undermining confidence is Elon Musk’s recent activities in the name of the Department of Government Efficiency, his attempt to inject himself into political discourse. This move is more than just unpopular. It signals a troubling diversion of focus.

“CEOs are wise to steer clear of political issues. Wading into political waters is fraught with danger and the upside is very limited.”

“For a CEO already stretched across multiple ventures, engaging in politics at this scale dilutes executive leadership at a time when Tesla faces real ESG scrutiny. For investors and employees alike, this raises governance concerns and reinforces the perception that Musk’s attention is increasingly misaligned with Tesla’s core business and stakeholder obligations.”

Kaplan isn’t the only expert who believes that Musk’s wider political ambitions are compounding the problems faced by Tesla amid the firm’s current ESG crisis.

Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University said: “CEOs are wise to steer clear of political issues. Wading into political waters is fraught with danger and the upside is very limited. Elon Musk aligning himself so closely with Trump and working for the administration has alienated a big portion of the organic Tesla consumer base and potential Tesla consumer base.

“Whether on the right or on the left, taking positions that could alienate a large part of your consumer base is an unwise strategy for any CEO. And, now Musk is publicly feuding with Peter Navarro. So, he has alienated a significant portion of the left and is in the process of alienating staunch Trump supporters on the right. Simply put, that is not good for business and is a template for destruction of shareholder value.”

“Global institutions and next-gen consumers are pushing companies toward higher standards”

Ultimately, businesses and risk managers looking to learn from what is happening to Tesla should start by examining their own ESG credentials, and ensuring that their governance models are aligned with key investors.

As Kaplan concludes: “Even future-forward companies aren’t immune to ESG backlash if they neglect the ‘G’ in ESG. ESG isn’t a checkbox. It’s an integrated risk lens. Stakeholders, from institutional investors to customers, are increasingly vocal, values-driven, and willing to act. Ignoring the social and governance dimensions of ESG can cost even the most innovative companies more than market share. It can cost them their seat at the table.

“And perhaps most importantly: the ESG transition transcends political headwinds because it’s being driven by long-term financial materiality and multi-stakeholder accountability.

“While some markets will continue to politicise ESG, global institutions and next-gen consumers are pushing companies toward higher standards. Not because it’s trendy, but because it’s increasingly essential for resilience, brand integrity, and license to operate.”