Investor group Impact Engine 1, which has just won the climate on Big Oil, is preparing to launch its first EFT under the VOTE tick, which aims to encourage better corporate behavior through the right to vote. shareholders.
He is not content to assassinate a major oil company and send shockwaves through the market, engine no. 1 wants to start a mini-revolution in the way trillions of dollars of passive money are committed to Corporate America.
The impact investment group is preparing to launch its first publicly traded fund, called ETF Transform No. 500 engine number 1. How do you expect to shake things up? It is in the ticker: VOTE.
Instead of excluding companies with bad scores in environmental, social and governance metrics, or giving “good” companies a higher weighting, the fund aims to encourage better behavior through their voting rights. shareholders. It will follow voting guidelines with the goal of getting companies to invest in employees, communities, customers and the environment, according to a request.
It is a dramatic new approach to combining ESG investments and indices. As recently as February, Robeco Quant Research showed that passive managers were among those who voted the least in favor of social or environmental proposals.
Even in ESG-focused products, the practice is usually to reward good behavior and punish evil at the time of capital allocation, rather than through shareholder action.
“A climate fund can limit your carbon emissions in your portfolio, but not change the amount of carbon emitted into the environment,” said Michael O’Leary, general manager of engine no. 1. “With this product, the idea is: What can we as active owners do to really drive these businesses through the way we vote, the campaigns we do, and the other investors we bring with us?”
Earlier this month, engine no. 1 won three seats on the board at Exxon Mobil Corp. after a six-month struggle by delegation. The bet now is that ETF investors will want to join the cause.
With this in mind, the prices of the new fund have been set at a minimum of 0.05%. It is also aimed at a mass audience: VOTE will track the Morningstar US Large Cap Select index of America’s 500 largest companies and, as a result, weight them by market capitalization.
“Most sustainable products on the market exclude or re-weight” companies with low ESG scores, said Yasmin Bilger, head of engine ETF no. 1. “This idea of a pure game: keeping it exactly with the market limit, keeping it’s similar price and driving value through active ownership: it’s really unique in the market.”
It remains to be seen if it stays that way. Asset managers in all bands are increasingly committing to ESG standards, including companies like BlackRock Inc. As the world’s largest money manager and ETF issuer, it has a huge amount of shareholder power.
In fact, much of the success of engine no. 1 will depend on the participation of three major players: BlackRock, Vanguard Group and State Street Corp. they now own 43% of the U.S. equity industry in the fund industry, according to Morningstar Inc. John Rekenthaler, the firm’s vice president of research, reported in a recent report that it once owned 35% of the company’s typical shares.
“If these three organizations remained loyal to business management, they could shut down virtually any activist activity,” Rekenthaler wrote.
Robeco’s study showed that larger, passive managers were less likely to vote in favor of ESG proposals, a phenomenon he speculated could be related to the need to keep costs low. However, the research was based on historical data and the authors acknowledged that recent years have shown that votes in favor are “slowly increasing.”
In addition to its vote, engine no. 1 will use the profits from the ETF to help fund its work to advocate for the change of some of the largest U.S. companies. Although with such a low expense ratio, you will need to attract significant assets to generate significant revenue.
The new fund will be launched with an initial capital commitment of $ 100 million. It is also being boosted by investment advisor Betterment LLC, which will integrate VOTE into all of its socially responsible investment strategies.
“It became clear to us that it would become a major area of concentration, as investors, including our clients, understand how capital can drive change,” said Boris Khentov, Betterment’s senior vice president of operations. “People will want to be part of campaigns like the No. 1 engine Exxon campaign.”
To contact the author of this story:
Claire Ballentine in New York at [email protected]