European asset managers are split on whether SpaceX meets the continent’s flagship sustainability disclosure rules, potentially limiting the access of funds managing more than €6.5tn to the world’s largest ever public float.
Investors are clamouring for access to the $75bn initial public offering, which would give Elon Musk’s satellite communications, AI and space exploration company an implied market value of $1.78tn.
However, European investment funds with more than half the continent’s assets under management may not be able to buy SpaceX due to governance criteria in the European Commission’s landmark 2021 Sustainable Finance Disclosure Regulation.
“It’s really hard to argue [SpaceX] has good governance . . . Investment committees will want to be a part of it but how do they defend it?” said one executive at a large European asset manager. “A lot of European investors with SFDR will not be able to buy it.”
The blockbuster IPO is a challenge for the continent’s sustainable investing framework, with some investors saying SFDR should disqualify SpaceX from inclusion in many European funds, and others pointing to “ESG fatigue” on the continent, where Musk’s electric vehicle maker Tesla is widely held.
Since SpaceX filed for its IPO, concerns have been raised over its share structure and limiting of shareholder rights, the concentration of control among insiders, potential conflicts of interest and a lack of board independence and remuneration oversight.
While compliance with SFDR is mandatory, fund managers can choose to classify their funds under three of its articles. Article 6 funds have no sustainability requirements. “Light green” Article 8 funds promote social and environmental “characteristics”. “Dark green” Article 9 funds invest only in companies deemed by managers to “significantly contribute to sustainable objectives”.
Last November, €6.8tn was invested in light and dark green funds while €4.8tn was in Article 6 funds, according to the most recent data from Morningstar Sustainalytics.
Companies that Article 8 and 9 funds invest in must “follow good governance practices”, and managers must publish a description of their governance policy assessment “with respect to sound management, employee relations, remuneration of staff and tax compliance”.
Owning SpaceX would be “very difficult to reconcile” with those requirements, said Frédéric Ducoulombier, a programme director at the Edhec business school’s Climate Institute.
“Standard published methodologies from managers would disqualify SpaceX on routine criteria [such as board independence and shareholder rights] without requiring any novel analytical steps,” he said.
“A manager could in principle construct [an ESG] methodology reaching a different conclusion, but the burden of documenting and defending it would be heavy . . . The problem is the governance, and the governance problem does not go away,” he added.
Stuart Riddick, senior sustainability manager at Aberdeen, said fund eligibility was “complex” but added: “Generally, if you’re using a common governance framework by ESG rating firms, SpaceX is the worst in class.”
Others argued there was scope for asset managers with alternative interpretations of SFDR to get SpaceX into their funds.
“I saw some clients where it’s not so clear about the governance rules . . . sometimes [they] are not so fixed,” said Christophe Boucher, chief investment officer at ABN Amro Investment Solutions. “It is an exciting investment and you can see the [ESG] trade-off.”
He added that for ABN Amro’s ESG-linked passive funds, “we will decide to include [SpaceX] or not based on governance policy analysis”.
The European Commission said in 2023 that its rules did not “prescribe any specific approach” for defining an investment’s contribution to ESG objectives. Rather, it was for managers to disclose their sustainable investment methodology, including how this meets good governance criteria.
Kevin Thozet, an investment committee member at French asset manager Carmignac, said: “We do hear some investors are stating that they will not invest . . . as it is a controlled company, but I believe this is more internal rules related than SFDR [which is] relatively broad (not to say vague) on the ‘good governance’ criteria.”
“This de facto leaves a lot of judgment up to each asset manager,” he said.
One London-based manager said there was “a lot of scratching of heads” about SpaceX and that its SFDR treatment would differ depending on the country — Denmark was stricter on governance, France hotter on tax compliance, while Ireland was “laxer”, for example.
“But most managers will find a way around this, because of the size of the company,” the manager said.
SFDR has been criticised for its complexity, its failure to boost investment in ESG-focused funds and for limiting access to European defence companies and nuclear energy businesses involved in the transition to net zero.
Nicolas Forest, chief investment officer at Luxembourg-based asset manager Candriam, said that “investors want to benefit from the tech rally — so they will try [to get exposure to SpaceX] . . . There is clearly ESG fatigue in Europe.”
Several managers pointed to the precedent of Tesla, which few European funds have excluded. One US-based manager with a significant European presence said their portfolio managers did not see SFDR as a concern “currently” for SpaceX, given Tesla’s broad ownership.
Not all agreed, however. One important difference between the two is that while Tesla has a single-class shareholder structure — of which Musk owns about 11 per cent — SpaceX will have two classes of shares, with Musk holding about 82 per cent of the voting power through his special class even after the sale of new shares.
“European asset managers will have different views of [Tesla’s corporate governance]. But if you compare that, [SpaceX] is a disaster,” the executive at the large European manager said.
SpaceX did not immediately respond to a request for comment.
