US VEGAN CLIMATE ETF (VEGN)

overall rating:

1.4

planets

Finnie Zhao
7/17/2022
No items found.

The US Vegan Climate ETF (Ticker: VEGN) seeks to track the performance of the Beyond Investing US Vegan Climate Index. The Index is designed to address the concerns of vegans, animal lovers, and environmentalists by avoiding investments in companies whose activities contribute to animal suffering, destruction of the natural environment, and climate change. As the world’s first vegan-focused ETF, it screens large-cap US companies for a variety of ESG (Environmental, Social, Governance) considerations, primarily animal harm, and exploitation, as well as fossil fuels, environmental damage, and human rights. After scrutinizing the fund’s performance on multiple environmental metrics (water, carbon emissions, waste), I consider the fund well-performed in preserving animal welfare and environmental resources with clearly stated intentionality, but more information could be provided to improve its accountability and transparency. Overall, I give the fund a rating of 1.4 planets out of 3.

What it's made of:

1

The Top 10 holdings of the fund is: Tesla Inc, 5.14%; Nvidia Corporation, 4.29%; UnitedHealth Group Inc, 4.22%; Visa Inc, 3.67%; MasterCard Incorporated, 3.30%; Adobe Systems Incorporated, 2.38%; Alphabet Inc (GOOGL), 2.36%; Alphabet Inc (GOOG), 2.35%; Salesforce Inc, 2.35%; Broadcom Inc, 1.6%. The fund’s net assets total $62,324,678 with shares outstanding of 1,875,000. It is ranked as one of the best ETFs to have in portfolio by ASKTRADERS and has a 4.8% exposure to sustainable impact solutions.

By screening the top holdings, it is interesting to notice that the fund has a significant number of investments in technology companies, such as Tesla, Adobe, Salesforce, Alphabet (Google), etc. It is questionable to consider the fund ‘green’ enough given that Tesla is its largest holding and large components of the investments are made among technology companies. Tesla has recently been removed from The S&P 500 ESG Index by the U.S. Securities and Exchange Commission (SEC). Although it is acknowledged that Tesla contributed to the energy transition by being the world’s largest electric vehicle manufacturer, the company was however strongly critiqued for its social and governance issues concerning its precarious working conditions and controversial codes of conduct. Also, as a sustainable fund focusing on reducing environmental exploitation and improving animal welfare, I am expecting to see more major investments in companies that offer animal-friendly and eco-friendly alternatives, rather than investing in large information technology companies. In its portfolio allocation, the technology sector constitutes 33.7% of the total net assets, while energy and utilities only occupy 0.3% and 0.2%, respectively. Although the technology sector is usually a hallmark for major sustainable funds, it is also crucial for the fund to reduce its dependence on investing in the technology sector. Regarding this, CEO of Beyond Investing Claire Smith acknowledged in the annual report that the Fund’s underweight to the energy sector hurt as oil prices rose from $74 to $88. Without major investment in energy and utilities, the fund cannot be considered environmentally conscious enough in relieving fossil fuel dependence. According to its current portfolio, I would give a rating of 1 planet out of 3.

How it's made:

1.4

The US Vegan Climate ETF, stated on its homepage, invests in companies that offer (1) a humane approach that satisfies its rigorous ESG standard, (2) animal-friendly products that ban animal testing, animal-derived ingredients, and animal entertainment, and (3) good for the environment, good for people by screening out companies involved in fossil fuels and their use in energy production and in military and defense. The fund seeks to avoid investments in companies whose activities directly contribute to animal suffering, destruction of the natural environment, and climate change. This is the first ETF to launch in the ESG space with such a focus on veganism. The Index screens 500 of the largest US listed companies to exclude companies that derive more than 2% of their revenues from products or services directly related to prohibited activities that include animals (animal testing or animals in sport and entertainment), the planet (extraction or refining of fossil fuels or high carbon intensity), or people (tobacco products or armaments specifically designed for military and defense uses). Throughout its statements and relevant documents, the fund performs well in showcasing its intentionality in preserving animal welfare, which adds credibility to its sustainability.

After analyzing the fund’s impact chart, the VEGAN index outperforms S&P 500 Index in three environmental metrics: Greenhouse gasses, Waste generation, and Freshwater utilization. The index shows that it produces 24.54 tons of GHG (Scope 1&2) emissions per $million of revenue, 120 tons less than the S&P 500 Index. As of July 2022, the VEGAN index’s waste generation and freshwater utilization are close to zero per $million of revenue (1.84 and 0.5 tons, respectively). I commend the fund’s performance on these metrics but still consider the comparison not exhaustive enough. The transparency of the investment documents could be improved particularly regarding the rationale of the fund managers in company screening and due diligence. More data could be disclosed specifically regarding the invested companies’ performance in preserving biodiversity, animal welfare, and other environmental issues. Overall, I will give a rating of 1.4 out of 3.

Who makes it:

1.6

Beyond Impact, a member of the Beyond Investing group, provides dedicated venture capital funds and co-investments in start-ups and early-stage companies creating vegan, plant-based, and cruelty-free products and services. Beyond Investing LLC serves as the investment adviser and has overall responsibility for the general management and administration of the Fund. Dustin Lewellyn (CFA, Managing Director of the Sub-Adviser), Ernesto Tong (CFA, Managing Director of the Sub-Adviser), and Anand Desai (Associate of the Sub-Adviser) are the Fund’s portfolio managers. All three fund managers are specialists in ETF product management and portfolio accounting. Before managing the fund, Tong spent two years in the firm’s index research group, which consists of the US Vegan Climate Index and the Europe Vegan Climate Index. These two indexes are both rules-based indexes of large-cap stock, screened according to vegan and climate-conscious principles. With the collaboration of the team and based on the expertise of the fund managers, I would give a rating of 1.6 out of 3.

Sources:

https://veganetf.com/

https://www.marketwatch.com/investing/fund/vegn

https://veganetf.com/wp-content/uploads/2021/11/VEGN-SAI.pdf

https://www.veganetf-sftp.com/docs/vegn-your-questions-answered.pdf

https://veganetf.com/wp-content/uploads/2021/09/US-Vegan-Climate-ETF-Annual-Report-7-31-21.pdf