Inclusionary funds are an excellent way for investors to support companies addressing climate change, but they don’t influence the behavior of fossil fuel companies. And, ultimately, changes at these large fossil fuel companies will be essential to reach climate goals. Therefore, even these funds have a limited impact on climate goals.
Activist funds aim to make changes at fossil fuel companies. For example, the Engine No. 1 Transform 500 ETF (VOTE) launched a successful proxy battle to replace three ExxonMobil board seats with climate-friendly members. These new board members are in a great position to push the company to accelerate its transition to renewable energies.
In addition to activist funds, new Department of Labor rules could enable pension funds to vote proxies in favor of ESG proposals. As a result, investors might start looking at the ESG track records for these funds when making investment decisions, adding another dimension of analysis when evaluating different investment opportunities.