Over the past few years, celebrities have been going bananas for plant-based businesses, and the funds that support them are growing. Stella McCartney just launched a $200 million investment fund for vegan and sustainable brands. Musician Moby, actor Joaquin Phoenix, and filmmaker James Cameron have also publicly endorsed vegan and ethical investing to support companies that align with their values.
It’s great that Hollywood and influencers are using their popularity to promote vegan INVESTING, But how can you align your values with your own investments?
Few of us can invest like celebrities who are able to risk millions in venture capital funds with the newest startups offering animal-friendly solutions. Vegan mutual funds and exchange-traded funds (ETFs), which are accessible to everyday investors, make up a relatively small niche within the larger investment industry, but some options do exist.
As part of the Heart Rating team at Natural Investments, I’ve had the chance to review the strategies for two vegan ETFs:
• U.S. Vegan Climate ETF (VEGN)
• VegTechTM Plant-based Innovation & Climate ETF (EATV)
Typical screening criteria often consider whether companies are involved in activities such as animal testing, factory farming, and the use of animal products in fashion and cosmetics. I was pleased to find that both had the same goals: well-being for animals and the planetary ecosystem, with two different strategic approaches.
U.S. VEGAN CLIMATE ETF (VEGN)
The first vegan ETF in the U.S., founded in 2019 by Beyond Investing and Beyond Advisors IC, uses an avoidance method in its portfolio. Led by Beyond Investing CEO Claire Smith, the fund managers begin with the Solactive U.S. Large Cap Index, which consists of approximately 500 companies.
Next, the fund managers remove companies involved with animal-derived products, factory farming, or the use of animals in sports, entertainment, or lab-testing. The managers also exclude fossil fuel companies or utilities that burn fossil fuels for energy production, plus any company with a significant carbon footprint or history of environmental destruction.
Occasionally, the Heart Rating team finds that a fund’s shareholder responsibilities don’t match the investment thesis, meaning there is inconsistency between the screening process and the proxy voting record on environmental, social, and corporate governance (ESG) shareholder resolutions.
A review of VEGN’s proxy voting record shows close alignment between the fund’s values and proxy votes at corporate annual meetings. Furthermore, the VEGN portfolio advisor recently launched a campaign asking hospitals to offer plant-based options in patient meals, vending machines, and cafeterias.
According to Investopedia, the fund invests in environmentally friendly and cruelty-free companies such as Microsoft, Apple, and Meta (formerly Facebook). Essentially, the ETF provides a broad exposure to a variety of corporations and several sectors while avoiding those with the worst impact from a vegan-based perspective.
VEGTECHTM PLANT-BASED INNOVATION & CLIMATE ETF (EATV)
This exchange-traded fund takes a completely different approach to building its portfolio. As a thematic fund, EATV utilizes an affirmative approach to find innovative firms that can help the world aggressively move the needle on providing plant based diets in a sustainable manner for the world.
With affirmative investing, as opposed to excluding firms, the managers start with an empty slate and begin to add companies that meet their fund’s criteria. The goal is to replace the inefficiencies and environmental damage of livestock husbandry in the food supply chain and traditional animal-based products.
This includes investing in biotechnologies such as precision fermentation, the practice of manipulating micro-organisms to produce complex organic molecules such as proteins. The Good Food Institute notes that “in 2022, researchers around the world focused on lower energy-intensive processes for fermentation facilities to reduce costs, create jobs, and lower environmental impacts. Fermentation can help valorize food waste streams like surplus bread or surplus dates. This approach not only generates food but also reduces landfill disposal and emissions.”
Technological advances are not the only focus.
Although alcohol production is not generally a value supported by the fund, Belgian-based beer brewer AB InBev is included for its upcycling of spent grain – the industrial moniker used to describe the malt after a brewery has already used it to make beer – into plant-based milk. By minimizing the reliance on dairy milks, the effort lessens pressure on deforestation, food security, and greenhouse gas emissions.
EATV’s staunch commitment to veganizing corporations also includes shareholder engagement and dialogue with food manufacturers. Tattoo Chef excludes meat from its frozen meals, but up to 50% of the meals include cheese. Any significant manufacturer or user of dairy products is incompatible with the fund’s goals, so after discussions with the company yielded no change, EATV decided to exclude Tattoo Chef from its list of investable firms.
EATV was also the first recipient of the Ethos Impact Carbon Neutral Certification. Ethos is a research platform for ESG issues that performed a lifecycle assessment of the carbon footprint (scope 1, 2, and 3 emissions) and carbon credit offsets from every holding in the fund, to verify whether it remained carbon neutral or net negative during a specified period of time.
Based on this analysis, Ethos determined that the aggregate carbon avoidance potential of all EATV holdings was greater than the estimated carbon footprint, i.e., an investment in EATV results in a net reduction of carbon when considering the expected emissions avoided.
In the publicly traded space, oftentimes the difficulty for a values-aligned investor can be diversification and relying on fund managers to pick stocks for them. Lack of diversification is often a scare tactic traditional financial advisors use to dissuade clients from socially responsible investing (SRI), insisting that screening out a handful of firms will not offer competitive returns.
VEGN and EATV demonstrate that investment diversity is possible.
With research, a skilled financial advisor can assist in developing a risk-appropriate and diversified portfolio for a vegan investing strategy. Consider contacting yours today for more information.
Disclaimer: This publication is distributed to clients and friends of Natural Investments, LLC (NI). NI is an investment adviser registered with the SEC. It is for educational purposes only and is not intended to contain recommendations or solicit sales of any specific investment. Authors, representatives, or related persons of NI may own securities mentioned in here.
