United States: Engine No. 1 aims to tie company valuations to climate impact

Engine No. 1, which won an against-the-odds board challenge against Exxon Mobil Corp earlier this year, is publishing a framework for investing on Monday that pushes for a value to be assigned to how corporate activities affect climate and society.

The “total value framework” provides significant new insight into how the San Francisco-based firm, which has about $430 million in assets under management, picks companies to invest in. The framework was outlined exclusively to Reuters ahead of its publication.

Investors have closely followed Engine No. 1’s activity after three of its candidates won board seats at Exxon in a shareholder vote in May by criticizing the energy giant’s track record and targets on reducing its carbon footprint.

It was a stunning victory that Engine No. 1 achieved while holding just a 0.02% stake in Exxon, and investors have been looking for clues on the next moves by the firm, which was launched in December last year.

In the white paper to be published on Monday, co-authored with Wharton School management professor Witold Henisz, an adviser to the firm, Engine No. 1 said traditional environmental, social and corporate governance (ESG) scores were too detached from the financial value assigned to companies.

That makes it harder for investors to focus their capital to bring about changes like cutting emissions, Henisz said in an interview.

Instead, Engine No. 1 attaches value to a company’s impact on climate change, water consumption, workforce diversity or human rights. In the absence of company data that allows this, it uses models that draw on sources such as the United Nations and the International Labor Organization.

The original article can be found at reuters.com

(Photo: REUTERS/Lisi Niesner/File Photo)

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