The Little Engine That Did Is Launching Its Own ESG Fund

Last week, a little-known, upstart hedge fund set newswires abuzz with its success in landing two of its candidates on the board of ExxonMobil. That momentum continued as Engine No. 1 announced Wednesday evening that a third candidate it supported won a seat on the oil giant’s board of directors. The message, once again, is clear: more investors have been zeroing in on ESG (environmental, social and governance) performance for a while now, and there’s no going back.

This band of seven impact investors isn’t finished. Yet another new ESG fund is on the horizon. Earlier this week, Engine No. 1 announced it would launch its own exchange-traded fund (ETF), one that will make investing with social impact the priority its core focus.

The Engine No. 1 Transform 500 ETF will include shares in companies within sectors such as consumer goods, energy, financial services, healthcare, technology and utilities, but that list could grow. And while Engine No. 1 says it will base its investment decisions on companies’ disclosure and third-party ESG data providers, the managers behind the wheel of this new ESG fund will also track companies through the use of their own metrics.

Among the fund’s performance indicators at the start will be wages, workforce diversity, employee health and safety, capital expenditures, carbon emissions and land use – again, that list will grow.

In the wake of last week’s shocker surrounding ExxonMobil’s annual meeting, don’t be surprised if Engine No. 1 pulls a similar feat with another company.

“The Fund seeks to encourage transformational change at the public companies within its portfolio through the application of proxy voting guidelines,” Engine No. 1 said in a recent filing it submitted to the SEC, “through favoring actions that encourage companies to invest in their employees, communities, customers and the environment.”

Currently, the amount of assets planned for this very young ESG fund has not been disclosed; the SEC filing only announced a minimal amount of money on its ledgers for the time being. According to Reuters, Engine No. 1 started last year with about $250 million in total assets and $40 million invested in ExxonMobil shares. Although Engine No. 1 scored plenty of headlines with last week’s coup, it’s clear that was not the only strategy in the fund’s long-term plan: Prior SEC filings indicate this particular ETF has been in the works for at least a year.

At a time that at a minimum can be described as chaos, sustainable investing has held its own since early 2020. Considering the potential amount of money that is available for investing, watch for more funds, with various priorities, to appear in the next several years.  For example, last a week a new fund launched – just in time for Pride Month – that its managers have indexed to 100 corporations that has established a solid track record of supporting LGBTQ issues.

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