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Influential investor group Engine No 1 has just beaten Big Oil in terms of climate and is preparing to launch its first EFT under the stock code VOTE, aiming to encourage better corporate behavior through shareholder voting rights.
Unsatisfied to stir up a large oil company and send shock waves in the market, Engine One hopes to start a small revolution on how trillions of dollars of passive cash interacts with American companies.
The influential investment group is preparing to launch its first exchange-traded fund called Engine No. 1 Transform 500 ETF. Clues on how it hopes to change the situation? It is in the stock symbol: voting.
The fund does not exclude companies that score poorly on environmental, social and governance indicators, or give greater weight to “good” companies, but aims to use their shareholder voting power to encourage better behavior. A document shows that it will follow the voting guidelines and is designed to allow companies to invest in employees, communities, customers and the environment.
This is a compelling new method that combines ESG and index investing. As recently as February, Robeco Quant Research revealed that passive managers are one of the least likely to vote for social or environmental proposals.
(Bloomberg)Even in ESG-focused products, this approach usually rewards good behavior and punishes bad behavior in capital allocation, rather than through shareholder action.
“The climate fund may limit the carbon emissions in your investment portfolio, but it will not actually change the amount of carbon emitted into the environment,” said Michael O’Leary, managing director of First Engine Company. “With this product, the idea is: as active owners, what can we do to really promote the impact on these companies through our voting methods, the activities we carry out, and the other investors we bring?”
Earlier this month, Engine One won three ExxonMobil board seats after a six-month proxy battle. The bet now is that ETF investors will want to join the business.
With this in mind, the pricing of the new fund has been set at the lowest point of 0.05%. It also targets a mass audience-VOTE will track the Morningstar U.S. Large Select Index of the 500 largest companies in the U.S., so it will be weighted by market capitalization.
Engine No. 1 ETF Director Yasmin Bilger said: “Most sustainable products on the market either exclude companies with low ESG scores or re-weight them.” It provides similar price points and driving value through active ownership-truly unique in the market. “
Whether it will remain in this state remains to be seen. Asset management companies from all walks of life have made more and more commitments to ESG standards, including companies such as BlackRock. As the world’s largest fund management company and ETF issuer, it has a large amount of shareholder power at its disposal.
In fact, according to Morningstar’s data, the success of Engine One depends to a large extent on having three major players on its side-BlackRock, Pioneer Group and State Street Group now hold the fund industry 43 % Of U.S. equity assets. These three possible research vice president John Rekenthaler (John Rekenthaler) said in a recent report that one day they will hold 35% of the stock of a typical company.
“If these three organizations remain loyal to corporate management, they can effectively shut down almost all radical activities,” Rekenthal wrote.
Robeco’s research shows that larger, more passive managers are less likely to vote for ESG proposals, and it speculates that this phenomenon may be related to the need to keep costs low. However, this research relies on historical data, and the author admits that in recent years, the approval votes are “slowly rising.”
In addition to voting, Engine No. 1 will also use ETF proceeds to fund its work in advocating change in some of the largest US companies. Although the expense ratio is so low, it needs to attract a lot of assets to generate meaningful income.
The new fund will be launched with an initial capital commitment of US$100 million. It has also been promoted by investment consultant Betterment LLC, which will integrate VOTE into all its socially responsible investment strategies.
Boris Khentov, Betterment’s senior vice president of operations, said: “We are well aware that this will become a major area of focus as investors, including our customers, understand how capital drives change.” “People will I want to be a part of events like Engine No. 1’s Exxon event.”
Contact the author of this story:
Claire Ballentine in New York cballentine@bloomberg.net
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