Megaphone icon ETF Database is now VettaFi. Read More >
ETFdb Logo
ETFdb Logo
  • ETF Database
  • Channels
    • Active ETF
    • Alternatives
    • Beyond Basic Beta
    • China Insights
    • Climate Insights
    • Commodities
    • Core Strategies
    • Crypto
    • Disruptive Technology
    • Dividend
    • Dual Impact
    • Emerging Markets
    • Energy Infrastructure
    • ESG
    • ETF Building Blocks
    • ETF Education
    • ETF Strategist
    • Fixed Income
    • Free Cash Flow
    • Future ETFs
    • Gold & Silver Investing
    • Innovative ETFs
    • Institutional Income Strategies
    • Leveraged & Inverse
    • Managed Futures
    • Modern Alpha
    • Multi-Asset
    • Portfolio Strategies
    • Retirement Income
    • Thematic Investing
    • Volatility Resource
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Sector Tracker Tool
    • ETF Database Categories
    • Head-To-Head ETF Comparison Tool
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
    • Indexes
    • Mutual Fund To ETF Converter
    • ETF Data for Journalists
    • ETF Nerds
  • Research
    • First Bitcoin ETF
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Videos & Podcasts
    • ETF 360 Video Series
    • ETF Trends on Videos
    • ETF Trends on Podcasts
    • ETF Prime Podcast
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. How Engine No. 1 Breaks the ESG Mold
News
Share

How Engine No. 1 Breaks the ESG Mold

Karrie GordonAug 04, 2022
2022-08-04

There are a proliferation of funds out there that address environmental, social, and governance priorities for investors, but in an age of increased investor engagement, one issuer is tackling climate change head-on while pioneering a strategy that can appeal to any investor and drive meaningful change within industries.

Engine No. 1 is an investment firm that made waves and national news through its activism efforts last summer that led to three Exxon board members being ousted for replacements who had existing experience in the energy industry and in transitioning companies. The firm continues to drive measurable, meaningful change through its engagement with companies in the U.S., including General Motors and major U.S. oil companies.

A key milestone achieved just last month was the announcement that ConocoPhillips, Pioneer Natural Resources Co, and Devon Energy Corp — three of the biggest oil companies in the U.S. — had all independently joined the Oil & Gas Methane Partnership 2.0 (OGMP 2.0).

OGMP 2.0 is global, but the majority of companies that have signed on as of now are based in Europe. The group, led by the U.N. Environmental Programme, the European Commission, and the Environmental Defense Fund, is working to create a framework to measure and report emissions of methane, a potent greenhouse gas that is 80 times more impactful than carbon dioxide and a common byproduct of pipelines and oil fields.

The commitments of the three U.S. oil giants were in part made possible because of Engine No. 1 as the firm worked in collaboration with each of them to address investor concerns regarding methane emissions, creating a path towards reduced emissions while simultaneously generating long-term return opportunities for investors.

“Companies must consider environmental and social factors as their customers and governments are demanding it – and doing so creates value over time,” explained Yasmin Bilger, head of ETFs at Engine No. 1, to VettaFi.

The firm is also heavily engaged with automaker General Motors. Last year, the company announced its intentions to convert 100% of car sales to battery electric vehicles by 2035, one of the first in its industry to do so. Engine No. 1 named the strong management team as well as a forward-looking board as reasons that it is working with the auto maker to help bring those goals to fruition.

“The company took early steps to invest in the technology to build a new platform and convert their entire production fleet to electric vehicles, and now they are one of the companies best positioned to monetize those early investments,” Bilger said.

Engagement Through VOTE and NETZ

GM’s commitment to electrification is the kind of vision and drive that Engine No. 1 seeks to promote and support in companies through its engagement efforts, accessible through the firm’s two ETFs. These include the flagship ETF, the Engine No. 1 Transform 500 ETF (VOTE A), which invests in all companies within the S&P 500, providing beta exposure with an expense ratio of 0.05%, and the more targeted Engine No. 1 Transform Climate ETF (NETZ ).

The firm uses the votes it is granted from owning shares of the companies to engage in proxy voting at company board meetings on a variety of issues, including executive compensation, board representation, and company practices and policies. Proxy voting is a practice where investors allow someone else to vote in their stead; in the case of Engine No. 1, this means the firm can vote its shares towards pushing for improvements within companies that will create lasting value for both the companies and their shareholders.

“Our ETF platform encourages active ownership across the broadly held public markets. Our engagement isn’t just checking a box where you try to meet with hundreds of companies per year. As a firm, we focus on the highest impact engagements where we can drive material impact and create long-term value for shareholders and stakeholders,” explained Bilger.

VOTE and NETZ both give “investors the opportunity for engaged ownership—to use their voting power to hold companies accountable for accelerating adoption of best practices and increased transparency,” according to Bilger.

The two ETFs were designed to work in tandem with each other. VOTE provides passive core beta exposure to the S&P 500, while NETZ provides an active, high-conviction, thematic approach that is currently focused on 26 companies (as of August 2) and seeks higher returns over time. Both work to create change through Engine No. 1’s engagement practices.


Content continues below advertisement

Engagement Drives Meaningful Change

Engagement is increasingly being recognized as a strategy within ESG investment that can drive greater environmental change at the heart of where it is needed most, often in some of the heaviest polluting industries. It’s a far cry from the divestment approach to environmental investing that has been popular with investors in the past.

“Divestment is disengagement. You can’t help solve a problem by running away from it. Engaging with companies on the ESG issues that are material for them is the only way they can be profitable and sustainable for the long term,” explained Bilger.

In the U.S. as of now, there is no regulatory framework for ESG metrics, measurement, or reporting; this makes it easy to get bogged down in trying to rate companies compared to their peers, or to assign an “ESG score” to individual companies. Engine No. 1 seeks to sidestep all of that, focusing instead on the much bigger picture through its Total Value Framework.

“Our Total Value Framework (TVF) ties E, S & G data directly to economic outcomes. By connecting companies’ material environmental and social impacts to their financial performance over time, TVF helps us puts a tangible value on the focused actions that a company can take today and shows how those actions will make a company more valuable over time,” Bilger said.

It’s an important difference in a time in the U.S. when there is little agreement as to what data should be measured when it comes to ESG metrics, or how this data should be collected, reported, and provided to investors. It makes trying to compare companies and their current ESG metrics a herculean task. By instead focusing on where a company is going in terms of its ESG goals and measuring the difference that achieving those goals would make for value creation, Engine No. 1 creates a more definitive forward-looking framework for investors while pushing back against the narrative that ESG investing equates to reduced returns.

“We believe there doesn’t have to be a tradeoff between sustainability and returns. In fact, through our Total Value Framework, we show that companies that take their impacts into account will perform better over time,” Bilger explained. “A sustainable business is simply a company that can cover all of its costs, including the costs associated with its externalities, and make a profit. Thinking about investing this way aligns interests and is long-term capitalism.”

For more news, information, and strategy, visit VettaFi.

» Popular Pages

  • Tickers
  • Articles

Aug 15

Digging in to See Which Commodities Are Compelling

Aug 15

Innovative Equities Beckon Anew

Aug 12

Look to the New Economy Real Estate as Home Prices Rise

Aug 12

Stocks Heat Up While Inflation Cools Down

Aug 12

Why 5 Chinese Companies Voluntarily Delisting Could be Beneficial

Aug 12

Main Management Market Note: August 12, 2022

Aug 12

Investors Are Seeking Protection with Low Vol ETFs

Aug 12

Summer Heat Waves and the U.K. Carbon Market

Aug 12

3 Benefits to Getting Municipal Bond Exposure

Aug 12

Is It Time to Add a Healthcare ETF to Your Portfolio?

QQQ

Invesco QQQ Trust

VOO

Vanguard S&P 500 ETF

SPY

SPDR S&P 500 ETF Trust

SCHD

Schwab US Dividend Equity ETF...

VTI

Vanguard Total Stock Market...

JEPI

JPMorgan Equity Premium...

VNQ

Vanguard Real Estate ETF

VYM

Vanguard High Dividend Yield...

XLK

Technology Select Sector SPDR...

VGT

Vanguard Information...


Content continues below advertisement

Loading Articles...
Help & Info
  • Contact Us
  • Mission Statement
  • Press
Tools
  • ETF Screener
  • ETF Analyzer
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Performance Visualizer
  • ETF Database Model Portfolios
  • ETF Database Realtime Ratings
  • ETF Database Pro
More Tools
  • ETF Launch Center
  • Financial Advisor & RIA Center
  • ETF Database RSS Feed
Explore ETFs
  • ETF News
  • ETF Picks of the Month
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Best ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Legal
  • Terms of Use and Privacy Policy
  • © ETF Flows LLC
Follow ETF Database
Follow ETF Database

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X