The EXCLUSIVE n ° 1 engine aims to link company valuations to climate impact


A person participates in a Fridays for Future protest outside the Austrian Economic Chamber in Vienna, Austria on May 14, 2021. REUTERS / Lisi Niesner / File Photo

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Sept. 13 (Reuters) – The No.1 engine, which won an unexpected board challenge against Exxon Mobil Corp (XOM.N) earlier this year, released an investment framework on Monday that advocates the assigning a value to how business activities affect the climate and society.

The “Total Value Framework” provides important new information about how the San Francisco-based company, which has approximately $ 430 million in assets under management, selects companies to invest in. The framework was presented exclusively to Reuters prior to its publication.

Investors have been following the No.1 engine’s activity closely after three of its nominees won seats on Exxon’s board in a shareholder vote in May criticizing the company’s track record. energy and its carbon footprint reduction targets.

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It’s a resounding victory that Engine No. 1 scored by owning just a 0.02% stake in Exxon, and investors looked for clues to the company’s next stock, which was launched in December of. Last year.

In the white paper to be released on Monday, co-authored with Wharton School management professor Witold Henisz, company advisor, Engine No. 1 said traditional scores on the environment, society and corporate governance (ESG) were too far removed from financial value. allocated to companies.

This makes it more difficult for investors to focus their capital on changes such as reducing emissions, Henisz said in an interview.

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

“What we’re adding to the party is making it an economic argument,” Jennifer Grancio, CEO of Engine No.1, said in an interview.

As an example of how its model works in practice, Grancio noted that Exxon only included about 10% of its total carbon emissions in its reduction targets, mostly by excluding emissions created when customers burned. its fuel.

When companies fully report such emissions and take action to reduce them, “this is potentially a huge place to recover value,” said Grancio.

Engine No.1, founded by hedge fund veteran Chris James, has chosen to invest in companies that make fossil fuels in order to push them to minimize their impact on the environment.

Some funds avoid fossil fuel stocks altogether. Harvard University said last week that its endowment would divest itself completely from fossil fuels.

Engine No. 1 takes a very different approach, for example by investing in shares of energy companies in its new exchange-traded fund Transform 500 (VOTE.Z), which was created to strategically use its proxy votes.

Grancio declined to comment on what the No.1 Engine’s next target might be, but said he aimed to be a constructive partner for the companies he has invested in, not an activist hedge fund throwing proxy contests. .

“Exxon was a lot of work and we barely got past that,” she said.

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Reporting by Ross Kerber in Boston Editing by Greg Roumeliotis and Sonya Hepinstall

Our standards: Thomson Reuters Trust Principles.

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