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Portfolio > Asset Managers

Firm That Took On ExxonMobil Files for 2 ETFs

By Bernice Napach

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What You Need to Know

  • Engine No. 1 is planning a large-cap passive ETF and an actively managed climate change focused ETF.
  • The ETFs will use proxy voting guidelines to affect corporate behavior.
  • Engine No. 1 wants corporations to invest in their employees, communities and customers and to address climate change.

The little known investment firm that succeeded in replacing two members of ExxonMobil’s board of directors via a proxy vote last week has filed with the Securities and Exchange Commission to launch two “transformational” ETFs on the Cboe BZX Exchange.

Engine No. 1′s Transform 500 ETF is a passive ETF based on the Morningstar U.S. Large Cap Select Index, which targets the 500 largest U.S. companies by market capitalization and is reconstituted and rebalanced quarterly, according to the SEC filing.

The Engine No. 1 Transform Climate ETF is an actively managed ETF that favors companies that are transforming themselves and others to meet the growing demands of climate change. Target companies will generally be chosen from the Russell 3000 index and span multiple sectors, including agriculture, consumer, energy, technology and utilities.

Molly Landes, a former portfolio manager at BlackRock and equity trader at Fidelity and Bank of America/US Trust, will manage both funds. Fund Management at Engine No. 1 LLC will serve as the ETFs’ advisor, and Brown Brothers Harriman & Co. will be their custodian.

Both ETFs intend to use “proxy voting guidelines” to encourage companies to invest in their employees, communities, customers and the environment and thus create the transformational change that Engine No. 1 is seeking.

They will also use metrics provided by individual companies, Engine No. 1 and a third party to measure companies’ commitments to those goals. Those metrics include wages, workforce diversity, employee health and safety, capital expenditures, carbon emissions, and land use, according to the SEC filing.

The ETFs will generally follow the recommendations of an independent third-party proxy voting service retained to implement the proxy voting guidelines in determining how to vote on any specific matter.

The SEC filing did not identify the third-party proxy voting service nor the third party provider of metrics to measure a company’s commitment to achieve transformational change, which could potentially be one and the same.  As is usual in such SEC filings,  expense ratios for the funds were not disclosed.

Bernice Napach

@Think_Napach

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