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Australian fund manager BetaShares has officially dropped Tesla from its sustainability exchange-traded fund.

Chief Investment Officer Louis Crous said the company - which normally would be a mainstay in most "sustainability" funds - was dropped because of "ethical failures" on the part of Tesla, according toBusiness Insider.

“Tesla is still definitely a carbon leader…but it has fallen foul of our [environmental, social and governance] screens which resulted in its removal,” he told BI.

He continued: “During May last year at the height of the COVID pandemic, Tesla reopened its factory in Fremont, California, despite the orders of the local authorities, resulting in quite a large number of COVID cases. New reports have indicated that there was a significantly larger outbreak than was previously reported, so we have numbers from one to 50 COVID cases related to the factory.”

The investment officer said he had been mulling the move "for a while" and finally dumped its $60 million stake after “new evidence came to light” and “controversies and reputation issues” arose.

The fund also took exception with Tesla's environmental impact in Germany, where it is building a Gigafactory.

Crous noted: “German media reports that Tesla’s factory in Brandenburg will consume about 3.6 million cubic metres of water per year, which is roughly around 30% of the total water in the region. Some experts believe this will lead to restrictions on drinking water.”

He continued: “In December 2020, NGO the Tech Transparency Project alleged Tesla has been linked through its supply chain to Lens Technology, which in turn is facing allegations of directly benefiting form the use of state-sponsored forced labor provided by Uighurs and other minority Muslim groups in China. At the end of the day, these are things we don’t really want to compromise on.”

BetaShares says the tone at Tesla starts at the top, and told BI that Musk's behavior “does make a difference”. The fund says it reached out to Tesla with its concerns but has not received any response.

Meanwhile, in its place, the fund still holds shares of Toyota. Crous concluded: “Toyota will remain in place because they haven’t been screened out for other reasons and that’s the only way you can look at it. Now, on the surface it might not seem like it represents the portfolio from that perspective, but this fund is more than just an environmental product offering.”