Letztes Update: 28. September 2023
Due to investor rebellion: Oil giant ExxonMobil rethinks its strategy
NZZ Accents, 01.06.2021
All signs point to a storm at Big Oil
NZZ, 27.05.2021
Climate activists push oil companies into a corner
Daily Gazette, 27.05.2021
ExxonMobil
ExxonMobil was once a proud U.S. petroleum company. Until 2009, ExxonMobil was still regularly among the world’s most valuable companies in terms of stock market value, i.e. it was represented at the very top of the MSCI World. ExxonMobil wanted to continue investing in fossil fuel extraction on a large scale. That doesn’t quite fit with the International Energy Agency’s report that demand for fossil fuels will decline dramatically over the next few years.
For several years, ExxonMobil’s stock market value has been falling steadily. This was also the case with the competition, but was particularly strong with ExxonMobil. Small parenthesis: Energy stock prices have risen sharply in recent months as a result of rising energy prices.
Reenergize Exxon
The small hedge fund Engine No.1, which owns just 0.02 percent of ExxonMobil’s stock, managed to get three candidates nominated by Engine No.1 elected to ExxonMobil’s 12-member board in late May 2021 with the help of large pension funds and asset managers BlackRock, Vanguard and State Street.
According to Engine No.1, ExxonMobil’s previous board has jeopardized dividends for years through wasteful spending and flawed capital allocation strategies. In addition, ExxonMobil lacks a plan to create shareholder value in a world seeking decarbonization, he said. Engine No.1 wants to use its own candidates to accelerate the group’s energy transition and thus secure ExxonMobil’s long-term profitability. With these arguments Engine No.1 managed to convince the other shareholders of their candidates. Details about Engine No.1’s “Reenergize Exxon” campaign can be found here.
Voting rights
Before we take a closer look at Engine No.1, let’s take a step back: When you buy a share, you buy a share in a company – you become a co-owner of a corporation. Your share entitles you to vote at the Annual General Meeting. By the way, there are different types of shares. In order for you to have voting rights, you must own one common share. If you own two shares, you have two votes, etc.
If you buy a fund or an ETF, it contains different shares. The voting rights of the shares contained therein now go to the fund company. Swisscanto’s detailed sales prospectus states the following:
For stocks included in well-known indexes, ETF providers could account for several percent of the vote. You can usually read transparently how the ETF providers vote.
At Vanguard, for example, you can look in the “Proxy Voting Records” to see how Vanguard voted. It’s all elaborate and more for nerds. I went through the trouble for the legendary vote at ExxonMobil:
Vanguard, by the way, voted for only two of the candidates proposed by Engine No.1. Vanguard abstained on the rest. What I’m saying is that so far, hardly anyone has cared how the ETF providers voted.
Competitor iShares votes at over 15,000 shareholder meetings per year and votes on over 130,000 proposed resolutions.
To handle this volume of shareholder meetings, some asset managers are turning to proxy advisors. So-called voting advisors monitor public companies, assess management and make recommendations on votes.
The hedge fund Engine No.1
Engine No.1 is an American impact investing hedge fund that was just founded in late 2020 by Christopher James. The latter unceremoniously contributed almost USD 250 million from his own pocket to the foundation. In his opinion, capitalism can be used for positive change. Christopher James, for example, does not come from the eco-activist corner, but from the financial sector.
Engine No.1 was the first to express criticism of the sustainable investment strategies used to date. The financial returns of most ESG funds have been mixed and they have had virtually no impact, he said. Exclusions of controversial companies would only let investors sleep easy, but this would not achieve any effect.
ESG ratings are not standardized, ratings from different ESG data providers are not congruent, and ESG ratings are completely disconnected from other financial and operational metrics of the companies under review.
What is needed instead, he said, is a radically new research-based approach that is objective, comprehensible, and verifiable. Investors could only bring about sustainable change if they acted as active owners.
Next, Engine No.1 set its sights on the automotive sector, buying shares in US carmaker General Motors (GM). Engine No.1 aims to guide GM on the road to battery electric vehicles.
The ETF VOTE
On June 23, Engine No.1 launched an ETF with the symbol VOTE with USD 100 million in assets from institutional investors.
Many sustainable funds and ETFs exclude companies that operate in certain industries that are not considered sustainable. Or they weight companies that have a high ESG rating higher. Not so VOTE. Instead of excluding companies that need to change, VOTE wants to change them through active ownership. Because you can’t solve a problem by running away from it.
We launched the Engine No. 1 Transform 500 ETF to harness the power of investors - the power to create good jobs, reverse climate change, fight gender and racial injustice, and build an economy that is sustainable, inclusive, and prosperous.
Engine No.1’s ETF follows the market cap weighted “Morningstar US Large Cap Select Index”. This includes the 500 largest U.S. companies. The largest position is currently Microsoft with 5.79% followed by Apple with 5.76%. The index is almost identical to the well-known S&P 500 Index.
The ETF thus provides a return that is very close to the market return. Due to its low cost of only 0.05%, it is suitable as a core investment and should appeal to a broad range of buyers. And with Engine No.1’s activist approach, he said, it is a sustainable investment.
Engine No.1 plans to focus on two to four environmental and social issues per year, depending on where they see the greatest opportunity to drive change. The focus would be not only on ideological but also on economic changes.
Soon the “Engine No.1 Transform Climate ETF” will be launched. Further details are not available at the moment.
Concluding remarks
That fund companies vote is nothing new. Engine No.1 has simply made it big in the American way and in the media. The method is so simple that imitators will probably not be long in coming.
In the future, will we select ETFs based not just on cost, but on voting behavior? What do you think of this sustainable ETF and the activist approach? Write your opinion in the comments.
As always, this is not investment advice or a recommendation to purchase the ETF or a call for other transactions.
FAQ about the ETF VOTE
With a broker that gives you access to the US stock market. For example, it is tradable at Swissquote.
509
The TER is 0.05%.
Yes, the dividend is distributed on a quarterly basis.
In order to be able to vote at the Annual General Meeting of Swiss companies (on site, by mail, via the Internet), you must be entered in the share register. Not every broker offers registration in the share register and for some each registration costs extra.
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