Few had heard of the No.1 engine until it shocked U.S. companies this year by pushing Exxon Mobil to overhaul its board of directors, in part to focus more on clean energy. Now he brings his active stock ownership approach to the world of stock index funds, which are the core of most investors’ retirement accounts.
Yasmin Dahya Bilger is the Head of Exchange Traded Funds at Engine No. 1, whose ETF started trading in June under the ticker symbol “VOTE”. He owns 500 of the biggest US stocks, from Apple to Zillow, and says he will hold them accountable by engaging with their executives and voting at shareholder meetings.
Many equity funds say they do the same, of course, and some charge even lower fees than the No.1 engine. Bilger explained how his fund is different and how more and more investors are choosing to consider environmental, social and governance issues in the hope of the best long-term returns. This conversation has been edited for length and clarity.
Is Exxon the model for what Engine No. 1 will try to do with other companies? Shake the board to shake things up?
With the Exxon campaign, people like to call us activists. We like to call ourselves active owners.
There is a huge toolkit for interacting with businesses. One is activism, and frankly we hope to use this tool the least. What we are focusing on now are more collaborative engagements, working with management to make environmental and other key decisions to generate shareholder value.
And are you trying to do it with the 500 ETF companies?
We try to focus on several key themes that we think are important and on a small set of companies where we think we can make a difference.
We believe there is great long-term shareholder value to be demonstrated for key environmental and social issues. That means we’re only going to engage in places where we think we can make that strong, deep economic argument.
Can you give an example?
We are working closely with General Motors management on their long term goal of electrifying their fleet. We hope to help them defend their strategy and really give them the language they can use with their stakeholders, including their shareholders, to pursue this plan.
Should investors expect a change as big and as fast as with Exxon?
Markets are by nature short term. It’s a long-term vision. Many of these things, like an environmental focus, net zero goals, or a diverse workforce, work with shareholder value. But it’s about that long-term vision. Much of what we do has a long cycle towards it.
You want ETF investors to be excited about the way their votes are cast at annual shareholder meetings. What if one thinks nuclear power is good for the environment while another hates it? Do they have a say?
There’s a lot going on in this space about how best to interact with shareholders and get their feedback. A lot of startups are trying to tap into that energy and that feedback. In fact, we certainly want to get the pulse of our investors. What we want to focus on is transparency.
Most shareholders don’t even know that as shareholders they have one vote and one vote. And they also don’t know how their votes are cast. A person who invests in our fund will understand the position we take on a certain subject.
From the point of view of the end investor, [reports detailing how funds at annual meetings] very long reports to shareholders at the end of the year. Real-time disclosure is really important and we want to be the spearhead.
Since the ETF tracks an index, its performance should not be significantly different from that of the wider market. How should investors rate you in you?
This space, the ESG [environmental, social and governance] space, is very inaccessible to the average investor, and that’s because we speak in jargon and create big annual reports that no one can read and understand. What’s really important is the narrative aspect of what actually gets done. One of the most important things to me is how we communicate this to investors.
Should we expect your fund to vote very differently from large index funds at shareholder meetings?
Historically, what you’ve seen from large passive suppliers is that they tend to vote against proposals from environmental shareholders. Now that is changing. This year, there has been a demonstrable increase in support for many of these proposals, particularly on the climate. But I think there is a long way to go.
We hope to be the spearhead on this topic, bringing these issues to the fore for the general public. It is only recently that this concept of shareholder voting has been put in the spotlight.
The stereotype of ESG investors is that they are younger, they are women, they are more diverse. Is that the case?
ESG may have historically stuck in some corners. That’s because much of the conversation was about the ideology or morality of ESG investing. What you are seeing more recently is that we present a very strong shareholder value case for investing in this space. I think it broadens the network for who is genuinely interested in coming with us and participating.