Engine No. 1 Unveils Its Total Value Framework, Which Ties ESG Impacts Directly to Financial Value Creation

Unique method of measurement is the driving force behind the firm’s investment decisions

Engine No. 1, an investment firm that drives performance through impact, today published a white paper detailing its Total Value Framework. The Total Value Framework is a data-driven approach to investing that puts a tangible value on a company’s environmental, social and governance impacts and then ties those impacts to long-term financial value creation.

The Total Value Framework makes sense of the proliferation of ESG data by directly connecting economic outcomes to ESG impacts—showing companies and investors how to utilize that data and providing a valuable tool for both capital allocation and investment decisions.

“Through our prior investing experience, we had seen strong correlations between ESG impacts and economic outcomes,” said Chris James, founder of Engine No. 1. “When we used newly available data in our analysis, it became clear that these correlations are consistent for most companies, proving that ESG data is as core to the investment process as financially driven analysis. This framework, when applied to capital allocation, brings common sense back to capitalism itself.”

The Total Value Framework was developed by Engine No. 1 in collaboration with Witold J. Henisz, Professor of Management at The Wharton School, The University of Pennsylvania. It integrates reliable, independent ESG data into mainstream financial reporting and attempts to understand and accurately predict how ESG performance affects future valuations. For example, potential changes in regulation, customer or employee preferences, technological disruption, and other relevant factors all contribute to a company’s risk and growth profile.

Armed with that data, Engine No. 1 can focus on how the value delivered to stakeholders affects the value a company delivers to its shareholders. The framework drives Engine No. 1’s investment decisions. It also pinpoints actions companies can take on social and environmental issues to increase their shareholder value, while enhancing impact over time.

“The Total Value Framework finally makes sense of all of these ESG criteria and will help identify and maximize high-value impact opportunities that lead to improved financial value,” said Jennifer Grancio, Chief Executive Officer of Engine No. 1. “There should not be a tradeoff between impact and returns, and the framework’s analysis shows the significant financial upside of material, high-impact actions. This framework unites CEOs, board members, investors and those seeking impact.”

About Engine No. 1

Engine No. 1 is an investment firm that drives performance through impact. The firm was founded on the shared belief that a company’s ability to create long-term shareholder value depends on the investments it makes in its employees, customers, communities, and the environment. For more information, please visit: www.engine1.com.

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