The Rize Sustainable future of food ETF was launched in 2020 with the aim of investing in companies accelerating the transition toward more sustainable food production systems. The companies that are invested in are selected through a thematic approach with the use of a custom-built index. The index tracks down firms that derive a minimum of 20% of their revenues from sectors such as plant-based and organic foods or sustainable packaging. Overall I have decided to award this fund 2.2 planets as I am very pleased with the fund’s and its provider’s commitment to sustainability. Rize’s exclusion policy is very well-defined and its fund portfolio is dedicated to bringing positive change. However, it could do better by refining the sub-sector companies must be exposed to. It could also ask that companies generate more than 20% of their revenues from these sub-sectors as I find this threshold to be insufficient to ensure that the companies’ main goals align with the fund’s aims.
In order to build a more sustainable world, we must improve each component of the food production process, from growing crops to product packaging. For instance, too many non-recyclable products are currently used in packaging, many pesticides destroy biodiversity by harming species such as bees and additives can harm human health. This need for change is reflected by the aim of the fund and in turn through its sectoral breakdown which includes all components of the food production process: sustainable packaging (30.6%); ingredients, flavours and fragrances (24.9%); plant-based and organic foods (13.6%); precision farming (9.5%); supply chain technology (9.2%); agricultural science (5.9%); water technology (4.4%) and food and safety testing (1.9%).
Their top-holding SIG Group AG seems to be very committed to sustainability. It produces food and drinks packaging using 100% sustainable energy. Their packs are fully recyclable and mainly made from renewable materials. With aluminum being highly energy intensive to produce, it is noteworthy that they have developed aluminum-free packages.
The second top holding - FMC corp - is a little bit more controversial. The company is known for producing pesticides such as herbicides, insecticides and fungicides. In today’s world, we rely on such products to feed the ever-growing population as they allow us to increase yields. For instance, they kill pests and insects that can negatively impact the crop’s production. Without these, our diets would most likely be less diverse as certain crops would not survive and food would be more expensive as less abundant. However, herbicides are known to affect the soil’s biodiversity which in turn impacts the soil’s ability to sequester carbon. There are also a lot of controversies around the health problems they may cause and the type of food production system they support (e.g. inefficient use of scarce resources with crops unadapted to their climate). Yet, I didn’t find any known concerns about the particular pesticides that FMC corp produces. The firm also carries out research on precision agriculture which would allow us to use fewer pesticides by knowing precisely when and where such products are needed.
Additionally, I am unsure about having Deere & CO and CHN industrial among the top 10 holdings. Both companies produce agricultural equipment such as tractors. Tractors may be necessary for agriculture, but they are highly polluting vehicles. Both companies have invested in electric models, but similarly to electric cars, it remains uncertain as to whether these vehicles are better for the planet than regular ones due to the use of lithium for batteries.
The fund is passively managed through the Foxberry Tematica Research Sustainable Future of Food index. The index tracks down companies that fit in the following 8 subsectors: plant-based and organic foods, ingredients, flavours and fragrances, food safety and testing, precision farming, agricultural science, water technology, supply chain technology and sustainable packaging. It selects companies that derive a minimum of 20% of their profit from exposure to the sectors previously named. I wished the minimum threshold for exposure to the subsectors was higher than 20%. This would avoid the inclusion of companies whose main goal is not related to one of the subsectors the fund wishes to invest in. Their subsectors may also be considered too broad. For instance, plant-based foods may not always be very sustainable. If their packaging is non-recyclable and their components contribute to deforestation, inefficient water use and unhealthy behaviour, then such products defeat the purpose of the fund, as they do not contribute to accelerating change towards a more sustainable food production system.
Nonetheless, the index has a strong exclusion policy. It excludes companies according to a list that Rize has put together, which includes firms such as Nestle or Danone, and according to Rize’s ‘Future First’ policy. This policy contains many exclusion criteria, such as a company’s involvement in thermal coal, oil and gas, alcohol, gambling, tobacco and violations of UNGC or OECD guidelines to name a few. These criteria are well-defined, giving us precise thresholds for exclusion rather than vague claims such as ‘significantly exposed to’ or ‘significantly involved in’. It is a good indicator that the fund sincerely wishes to avoid such companies.
Finally, the holdings are reviewed semi-annually, which shows the fund’s engagement in finding good investments over time by tracking the evolution of companies. This means that companies that might have not been considered good enough in the past can be given a second chance. Inversely, it means that firms that used to be considered sustainable but have been found to not be following good practices may be removed from the portfolio. This is a great policy but we would have to ensure that it is put into practice and that the relevant companies are removed from the fund’s portfolio.
The fund is managed by IQ-EQ and is provided by Rize ETF “Europe’s first specialist thematic ETF issuer”. Founded in 2019, the independent ETF provider focuses on future-oriented and sustainable products. In their portfolio, we find funds for the environment, cybersecurity and data privacy, education tech and digital learning, emerging market internet, and pet care. For each of these ETFs, Rize collaborates with thematic research houses and index providers to select the best companies to invest in. These funds fall under Rize’s ‘Future first’ policy which includes multiple exclusion criteria following ESG principles. I believe all of these components to be great indicators of Rize’s commitment to sustainability. They show that the ETF provider is ready to invest the necessary resources to positively impact society. Furthermore, while the founders do not appear to have any experience in sustainability, I was happy to see two sustainability analysts among their ranks with university degrees in sustainability-related topics.
Overall, I was also very pleased with the level of transparency offered by Rize. The website is very clear and straightforward with all of the important information easily accessible.