Engine No. 1, the activist investor that forced a board shakeup at Exxon Mobil Corporation to accelerate a move to clean energy, unveiled a new strategy using environmental, social and governance data to assess investments.
In a 38-page report released on Monday, the money manager said it would integrate ESG data with conventional financial analysis to scrutinize companies and pick investments. The “total value framework” seeks to predict how performance on ESG concerns affects a company’s value.
“ESG data is as core to the investment process as financially driven analysis,” Chris James, founder of San Francisco-based Engine No. 1, said in a statement. “This framework, when applied to capital allocation, brings common sense back to capitalism itself.”
Investors are pouring money into ESG assets, which are estimated to reach $50 trillion by 2025 from $35 trillion last year. Engine No. 1 said it’s essential for active managers to use ESG data to make sure their investments are actually encouraging companies to respond to climate and human rights challenges.
“For all the hype and hope in these extravagant numbers, however, the results have so far been disappointing,” the firm said in introducing its framework. “Far from changing corporate behaviour and creating a better world, some ESG funds have served the narrower and more self-indulgent purpose of making investors feel better by excluding obviously ‘bad’ companies from their portfolios.”
Engine No. 1 was a little-known investment firm until it secured seats on Exxon’s board, promising to push the crude giant to diversify beyond oil and fight climate change. It was one of the biggest activist upsets in recent years.
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