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How Engine No. 1's new $100 million ETF plans to change impact investing

In this article:
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Head of ETFs at Engine No. 1, Yasmin Dahya Bilger, joins Yahoo Finance to discuss Engine No. 1’s new social-impact ETF and what they plan to do to create lasting effective change in some of the top corporations such as Exxon.

Video Transcript

JULIE HYMAN: This is Yahoo Finance Live. I'm Julie Hyman. I'm going to be joining you for the full two hours, 11:00 to 1:00, but popping in here to talk about Engine No. 1. This is the activist fund that got a lot of attention with its successful campaign to get some new directors and push for big changes at ExxonMobil. Now, the company is introducing an ETF.

And Yasmin Dahya Bilger is joining us now to talk about it. She is Engine No. 1's head of ETFs, which is a new business for them. Yasmin, thank you so much for being here. This ETF is really interesting because it's effectively an index ETF, right? But what you all are going to do is push for changes at the companies where you deem it appropriate. Why did you guys decide to go this way, instead of, sort of, more specifically, targeting companies, as you did with Exxon?

YASMIN DAHYA BILGER: Yeah, that's absolutely right. So the ETF itself, ticker VOTE, it's a very simple product on the investment side. It gives exposure to the largest 500 companies in the US, weighted by market cap, priced at 5 basis points. The reason we started there is because that's virtually what every investor has in their portfolio, from the largest institutions to the individual investor.

And where we're really driving value is the work we do, though, as active owners, which, to us, means how we vote our shares, the engagements and the campaigns that we run, and importantly, the investors that we bring along with us, both to invest with us, but also the coalitions that we can build, as we saw with the Exxon campaign. This is just really part of a broader strategy we have around helping to transform the system.

Exxon was how we were introduced to the market. But if I really sort of fast forward to who we are, we're an impact investment group that really believes that the positive and negative impacts that a company has are not just ideological issues, they're economic issues. They're shareholder issues.

JULIE HYMAN: Yasmin, 500 companies is a lot of companies. How many of these do you think actually need changes, whether big or small? And what kind of bandwidth do you guys have? I mean, that's a big job that you guys are tackling here.

YASMIN DAHYA BILGER: Yeah. Well, I think this is where it comes down to how we think about what engagement really looks like. If you look at most traditional asset managers, they really lean towards quantity, trying to get around to all the companies and talk about all the issues. We're really taking a much more focused and a much more targeted approach, really focusing on the key themes with key companies, where we really think that we can have, A, impact and, B, there's a strong shareholder case to make.

So I think that focus is really our strength and really where we'll be able to move the needle. I should also say one of the very interesting parts of the product is how we vote, which is where we will be actually sort of spanning the spectrum of the companies in the portfolio. So it's really the combination of both the voting and then the targeted engagement that I think is really unique and powerful about this product. In my mind, it gives investors the ability to take a seat at the table with us, join us on the transformation that we're trying to drive across the board.

BRIAN SOZZI: What have you and the team learned from the activist campaign at Exxon? And what will-- how will that be applied to any future targets?

YASMIN DAHYA BILGER: Yeah, I think one of the most interesting parts about that is really the fact that we only owned two basis points of that company. And we're able to have a significant impact. And what that tells me is that you're really only as strong as the investors that you can bring along with you, the coalition that you can build, which is why what's really important for us is to really frame this as an economic argument and really focus on shareholder value.

I mean, our belief is that long term sustainable shareholder value depends on the investments that companies make in their employees, in their customers, in their communities, in their environments. And it's really the strength of that argument that helps you bring people along with you. I think that will be the power that also we're harnessing with this particular ETF as well and really giving a platform for all investors to be part of that change with us.

MYLES UDLAND: You know, Yasmin, obviously, the ETF gains billions and billions in assets. You become a larger investor. And then you have more shares to vote with. But I think the Exxon example, when I thought about it, I said this seems like the future of activism, right? You get the big passive holders on your side as a smaller shop. And that's how you create change, rather than trying to be Elliot or one of these other players.

Does it seem to you like you have a blueprint for other shops who want to enact the same kind of change, put the same kind of pressure on management that you don't have to have billions as a big hedge fund and buy 10% of the company. You can have a smaller stake, but get the right folks on your side. And all of a sudden, you're moving the needle.

YASMIN DAHYA BILGER: Yeah, I mean, I really think that the way we were able to drive change with such a small ownership percentage is a really important part of the story. I also think that we have a very wide toolkit when it comes to the active ownership space. There's obviously the transformational activism, like we're talking about with the Exxon campaign. But there's also more collaborative engagements that we'll start maybe doing, more broad-based engagements.

And then I think the voting part is very interesting. Because one of the things that I imagine is that most investors don't even know they have a vote, which I think is very interesting. They also don't know that people are voting on their behalf. So as there starts to be more transparency on this topic, and investors realize that they have a voice and they should know how it's being used, I also think that's the strength and value proposition of what we're trying to do here, really voting in alignment with what we believe are many investors' values across key environmental and social issues.

JULIE HYMAN: Yasmin, finally, your title is head of ETFs, not head of ETF. And as you said in the release for this, it's an inaugural ETF. What's-- I mean, again, this is a big job, this one alone. But what's the plan going forward for more ETFs?

YASMIN DAHYA BILGER: That's absolutely right. This is a business that we're building for the long term and for scale and really see ourselves as being a big player in the space. We started with VOTE because it is, as I mentioned, what virtually every investor has in their portfolio-- low cost market cap, priced at 5 basis points. Be along for the journey with us. Join us as we act as active owners.

We'll also have a breadth of different strategies that I think speak to different parts of people's portfolios, more theme-based, more focused. But really, that's what the market can expect from us, is that this is not just one strategy. This is not just about one campaign. This is not just about one product. We're really trying to transform the system. And the ETF business is a very important part of that because what it does for us is it allows every investor, as I mentioned, institutional to self-directed, to be a part of that with us, to take their seat at the table. And also, it lets us drive scale.

JULIE HYMAN: Yasmin, I'm really looking forward to keeping in touch then and talking to you as you guys embark on this, as you begin some of the campaigns for some of these companies in this portfolio and then introduce more ETFs. Yasmin Dahya Bilger is head of ETFs at Engine No. 1. Thanks so much. Appreciate it.