The investment group that convinced ExxonMobil shareholders to give it control of three board seats has launched an exchange-traded fund (ETF) as it looks to prod more companies into enhancing their sustainability efforts.
The San Francisco-based company debuted the Engine No. 1 Transform 500 ETF (ticker: VOTE) with an initial commitment of $100 million.
ETFs are baskets of securities that trade like stocks and seek to track a given index, commodity or sector.
Engine No. 1’s ETF is designed to invest in a market-cap weighted index of the 500 largest U.S. stocks and seek to track the Morningstar U.S. Large Cap Select Index, the principals said.
After its formation last year, the firm encouraged ExxonMobil to adopt more aggressive decarbonization goals, in line with European majors such as BP plc, Equinor SA, Royal Dutch Shell plc and TotalEnergies SE.
Instead of choosing stocks that align with its environmental, social and governance (ESG) goals, VOTE instead would seek to force change at large companies through an “active ownership” strategy. The socially responsible investment (SRI) strategy would be carried out through shareholder votes, campaigns to promote sustainable investments and the recruitment of like-minded investors.
Digital investment adviser Betterment plans to integrate VOTE into all of its socially responsible investing strategies, Engine No. 1 said.
VOTE would have an annual expense ratio of 0.05%, in line with other prominent ETFs, highlighted Betterment’s Boris Khentov, senior vice president of operations.
“VOTE can disrupt the idea of what it means to be an index fund, while retaining its most appealing feature—low cost,” Khentov said. “We believe it will resonate with our retail investors, 401(k) plan participants and advisory firms alike.”
He added, “We share Engine No. 1’s vision that index funds should serve as collective action vehicles for sustainability-minded investors and are excited to integrate this groundbreaking ETF into our SRI strategies.”
Engine No. 1’s Michael O’Leary, managing director, framed the active ownership model as a more effective way to enact change than simply investing in companies that already have a robust ESG strategy.
“The problem isn’t passive investing, it’s passive ownership,” said O’Leary. “Too many sustainable investing strategies shift an investor’s exposure away from companies that need to change rather than working to change them. “We see an opportunity to harness the power of investors in a new way.”
Engine No. 1’s Yasmin Dahya Bilger, head of ETFs, said, “There shouldn’t be a trade-off between positive impact and financial performance. VOTE will be a unique solution to this long-time concern, enabling index investors the ability to generate long-term value while bringing action to the most critical environmental, social and governance issues facing these companies.”
ExxonMobil is not the only U.S. major facing pressure from investors to improve on ESG.
Chevron Corp. shareholders also voted overwhelmingly in May to reduce the greenhouse gas emissions of its customers, aka Scope 3 emissions.