(2021-06-30) A Major New Index Fund Should Unnerve Climate Skeptical Ceos

A Major New Index Fund Should Unnerve Climate-Skeptical CEOs. Last month, a tiny hedge fund called Engine No. 1 staged a coup of sorts at ExxonMobil—a shareholders’ revolt that unseated three members of the oil company’s board of directors and replaced them with more climate-concerned candidates. The putsch was the first centered on climate change at an American oil company.

Now the financial group is ready to recruit ordinary investors—people with 401(k)s, Robinhooders, the macroprudentially curious—into its army. Tomorrow it is launching an exchange-traded fund, or ETF, that will track the performance of the 500 largest public companies in America, the firm told The Atlantic.

unlike other index-fund providers, which sit out some fights with management, Engine No. 1 has pledged to crusade. When Engine No. 1 campaigns against a company’s leadership, shares held by the Transition 500 ETF will vote for its slate. The ETF will trade on the stock market, appropriately, under the ticker symbol VOTE.

Engine No. 1 is not the first fund to break that pattern—proxy fights have been a significant feature of Wall Street since the 1970s—but it did so, notably, by holding only 0.02 percent of Exxon’s stock. It found success because it convinced investors holding another 49.99 percent of Exxon’s outstanding stock to join its campaign.

here’s why I think VOTE is truly notable:

1. It is inexpensive

In 2017, when Betterment offered its first socially responsible portfolio, the one large-cap U.S.-stock ETF that it recommended charged fees of 0.5 percent

VOTE, by comparison, charges 0.05 percent.

2. It has a clear theory of change

For the past decade, the dominant approach among climate-concerned investors has been to exit: If you’re worried about climate change, activists have exhorted, you should divest from fossil-fuel stocks. But last month, Engine No. 1 voiced its problems with Exxon—and found rapid success. VOTE now lets average investors try voice too.

3. It puts pressure on other index-fund providers

The so-called Big Three index investors—Vanguard, BlackRock, and State Street—are the largest shareholders in most major U.S. companies. They have not been known as drivers of innovation in the boardroom

BlackRock, the largest of the three, has lately come to champion ESG—environmental, social, and governance—goals in its voting.

BlackRock has voted against Exxon’s board for the past several years

Engine No. 1 triumphed only because Vanguard, the most reticent of the three, broke with Exxon and joined its campaign.

“We believe that for companies to create shareholder value, they need to focus on investments they make in communities, employees, customers, and the environment,” O’Leary said. (ok that line is bullshit)