In fact, much of Engine No. 1’s success will depend on getting three major players on its side—BlackRock, Vanguard Group and State Street Corp. now hold 43% of the fund industry’s U.S. equity assets, according to Morningstar Inc. The three could one day hold 35% of the typical company’s stock, said John Rekenthaler, the firm’s vice president of research, in a recent report.
“If those three organizations remained loyal to corporate managements, they could effectively shut down almost any activist activities,” Rekenthaler wrote.
Robeco’s study showed that larger and more passive managers were less likely to vote in favor of ESG proposals, a phenomenon it speculated could be linked to the need to keep costs low. However, the research relied on historical data and the authors acknowledged that recent years showed votes in favor were “slowly on the rise.”
In addition to its voting, Engine No. 1 will use the proceeds from the ETF to help fund its work in advocating for change at some of the largest U.S. firms. Although with such a low expense ratio, it will need to attract significant assets to generate meaningful revenue.
The new fund is launching with an initial capital commitment of $100 million. It’s also getting a boost from investment adviser Betterment LLC, which will integrate VOTE into all of its socially responsible investing strategies.
“It became clear to us that this was going to become a major area of focus as investors, including our clients, understand how capital can drive change,” said Boris Khentov, senior vice president of operations at Betterment. “People are going to want to be part of campaigns like Engine No. 1’s Exxon campaign.”
This article was provided by Bloomberg News.