US investment advisor Beyond Investing has announced the upcoming launch of the US Vegan Climate ETF (VEGN US) – a US large-cap ETF that screens stocks for veganism and environmental criteria.
The fund will be the first ETF to specifically target the vegan theme.
The fund is due to go live on NYSE Arca on 10 September 2019.
Funds incorporating environmental, social, and corporate governance (ESG) screening are one of the fastest-growing segments of the ETF industry.
The evolution of the segment has seen the incorporation of ESG into smart beta products, the expansion into the fixed income, and launch of thematic funds targeting minority rights or women’s empowerment.
Building on this movement, VEGN will become the first ETF to specifically avoid companies linked to animal cruelty.
The fund tracks the proprietary US Vegan Climate Index which screen the Solactive US Large Cap Index – a proxy for the S&P 500 – to exclude stocks with activities that are incompatible with a vegan and climate-conscious approach to investing.
The veganism screen identifies firms that are involved with or benefit from animal testing, produce or sell animal-derived products, or are engaged in using animals for sport or entertainment purposes.
The environmental screen identifies firms engaged in fossil fuels extraction, energy production, and other environmentally damaging activities.
Additionally, a general socially responsible investment (SRI) overlay excludes firms with recent human rights abuse records, those that are embroiled in current ESG controversies, as well as companies in the military and tobacco industries.
The excluded stocks are replaced with mid-cap alternatives that satisfy the ethical criteria.
The index weights constituents by market capitalization, thereby producing a risk profile similar to traditional US large-cap funds but adjusted for sustainability and vegan activism.
According to Beyond Investing, when compared against the Solactive US Large Cap Index, the Vegan Climate Index uses 61% less carbon, as measured by CO2 equivalent emitted per $1 million of revenue; generates 89% less waste, as measured by solid waste generated to create $1 million of revenue; and uses 83% less water, as measured by the volume of freshwater used to create $1 million of revenue
Claire Smith, CEO of Beyond Investing, commented, “Our aim is to help vegans and animal activists take the pain out of their portfolios. So many compassionate people go to great efforts to avoid buying products that contain animal ingredients or have been subject to cruel testing, but when it comes to their investment options, they’re actively, albeit often unwittingly, supporting companies and industries that exploit and torture animals.
“Our ETF offers them the opportunity to invest in line with their values. And because we love humans as much as other animals, we have defense and human rights screens as well.”
Unfortunately, as is usually the case with specialized investment strategies, investors will be paying a premium to access the vegan-friendly exposure. The fund comes with an expense ratio of 0.60%, which is a middle-of-the-road price tag for US thematic equity ETFs but notably higher than the cost of a broad market, cap-weighted US equity ETF which could go for as little as 0.03%.
Beyond Investing explains that the fund’s expense ratio reflects the cost of extensive research, the creation of a proprietary data set, and the index’s construction methodology.
“It requires a lot of detailed work to ensure that all relevant information is collected and analyzed,” said Smith. “Plus we’re building the index in a robust fashion and providing impact metrics, which demonstrate its social and environmental benefits. These are just some of the ways in which Beyond Investing seeks to differentiate itself from other providers. Once the ETF is launched, we plan to engage with companies to encourage them to make their business practices to be more animal-friendly by removing animal products from their business lines and improving their services to vegans.”