Impact investment manager Engine No. 1 has launched its inaugural ETF, the Engine No. 1 Transform 500 ETF (VOTE US).
Michael O’Leary, Managing Director of Engine No. 1.
The fund has listed on Cboe BZX Exchange and comes with an expense ratio of 0.05%.
Engine No. 1 is understood to have secured initial commitments of $100 million for the fund.
The fund tracks the Morningstar US Large Cap Select Index, a float-adjusted market-capitalization-weighted index of the 500 largest US stocks by market capitalization.
Rather than excluding or re-weighting stocks, which is the approach of most environmental, social and governance (ESG)-focused strategies in existence today, it employs a conventional full replication methodology.
Instead, the fund seeks to improve companies’ environmental and social impacts by the way it casts its proxy votes and through active dialogue with the management of portfolio companies.
Engine No. 1’s approach to proxy voting is based on a commitment to align shareholder and stakeholder interests through actions that encourage companies to invest in their employees, communities, customers and the environment.
According to Michael O’Leary, Managing Director of Engine No. 1, “The problem isn’t passive investing, it’s passive ownership. 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.”
O’Leary is co-author of top-selling book Accountable, published in 2020, which offers a blueprint for individuals to take responsibility as consumers, as investors, as employees, and as voters, to engender a shift to a more ethical economy.
Engine No. 1 intends to measure the investment made by companies in their employees, communities, customers and the environment with financial, operational, and ESG metrics. These metrics include wages, workforce diversity, employee health and safety, capital expenditures, carbon emissions, and land use, among others.
The asset manager will assess these metrics against qualitative and quantitative criteria developed in-house and will compare the metrics against benchmarks based on industry averages.
This activist-driven approach has won the support of digital investment advisor Betterment, which has vowed to integrate the new ETF into all of its socially responsible strategies.
Boris Khentov, SVP of Operations at Betterment, said: “VOTE can disrupt the idea of what it means to be an index fund while retaining its most appealing feature—low cost. We believe it will resonate with our retail investors, 401(k) plan participants, and advisory firms alike. 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 ground-breaking ETF into our SRI strategies.”
Engine No. 1’s ETF business was established under the direction of CEO Jennifer Grancio, a former founder and senior executive of BlackRock’s iShares business, and is led by Yasmin Dahya Bilger, former Head of Americas Beta Specialists at J.P. Morgan.
Other senior members of Engine No. 1’s ETF team include Jason LaMacchia, former Principal and Director for BlackRock’s iShares business, who serves as Director, and Molly Landes, former International Index Equity Portfolio Manager and Vice President for BlackRock’s iShares business, who serves as Portfolio Manager.