Paris-based Ossiam has launched an ETF providing exposure to a portfolio of global food stocks optimized to minimize habitat and biodiversity destruction.
Bruno Poulin, CEO of Ossiam.
The Ossiam Food for Biodiversity UCITS ETF has listed on Deutsche Börse Xetra and is available to trade in euros (F4DE GY) or US dollars (F4DU GY).
Bruno Poulin, CEO of Ossiam, commented, “To address the increasing destruction of our natural environment, all sectors of the economy must contribute in numerous ways before it is too late.
“The Earth’s population is predicted to reach about 11 billion by the end of this century, but if current food production methods and diets are not drastically improved, there are likely to be calamitous environmental, social, and political outcomes.
“Mobilising capital and engaging with companies in the broad food and agriculture sectors is one way of making a positive contribution to the immense environmental challenges facing humanity now.”
Investment strategy
Although technically actively managed, in the sense that it is not referenced to a specific index, the ETF follows a systematic rules-based model in its investment approach.
The initial investment universe comprises large- and mid-cap developed market equities of companies operating in the food sector. Eligible firms must have market capitalizations greater than $1bn and average daily trading values above $4 million.
All sub-sectors of the food supply chain are represented including agriculture, manufacturers, retailers, distributors, restaurants, and packaging food producers.
The fund harnesses insights from several ESG data specialists, including Sustainalytics, Trucost, ISS, and Iceberg Data Lab, to aid in portfolio construction.
Ossiam first conducts a best-in-class filter that eliminates the universe’s worst greenhouse gas emitters as well as the lowest 20% of firms from each food sub-sector when ranked by ESG rating. The ESG rating in this regard encompasses a broad range of sustainability factors relevant to the food sector.
Companies operating in controversial industries, such as tobacco and palm oil, those embroiled in severe ESG-related controversies, as well as UN Global Compact violators are also removed.
Ossiam maintains oversight of the removal process and may add companies that were initially excluded (due to missing ESG data, for example) but are deemed to have a significant positive impact on biodiversity.
The remaining stocks are weighted using an optimization process that minimizes the portfolio’s biodiversity impact (based on the previous year’s biodiversity impact data) while also reducing total greenhouse gas emissions by 30% and capping the weight of any single stock at 7%. Stocks with relatively insignificant weights after the optimization process are removed from the portfolio.
Iceberg Data Lab provides companies’ biodiversity ratings, known as Corporate Biodiversity Footprints, using the Mean Species Abundance (MSA) approach which captures the extent of degradation of the current ecosystem compared to its undisturbed natural state. The measure encompasses a company, its suppliers, and its customers.
Firms can boost their biodiversity ratings by improving their practices in one of four measured contributors: carbon emissions, the use of land which takes valuable space from natural habitats, the acidification of soil caused by nitrogen oxides found in fertilizers, and freshwater pollution.
Matthieu Maurin, CEO and co-Founder of Iceberg Data Labs, said, “The Corporate Biodiversity Footprint captures the most material impacts of food companies and their value chain on ecosystems. This quantitative metric allows investors to assess corporates through their primary social contribution, food production and distribution, and their environmental impact, notably the change of land use and contribution to deforestation.”
According to Ossiam, the construction process typically leads to a 99% reduction in negative biodiversity impact, equivalent to saving 218 km² of pristine habitat for every $100m invested compared to an equivalent investment in the benchmark investment universe.
The current portfolio consists of 66 names, significantly reduced from around 250 firms that comprise the initial universe. US-listed stocks account for 41.2% of the portfolio with the next-largest country exposures being the UK (14.5%), Japan (9.5%), Switzerland (6.6%), and France (5.4%). Three-quarters of the portfolio is allocated to stocks from the consumer staples sector with the remaining quarter in consumer discretionary stocks.
Notable positions include Costco (6.56%), Unilever (6.55%), Nestle (6.54%), Starbucks (6.36%), Mcdonald’s (5.93%), Mondelez International (4.87%), Danone (3.44%), Chipotle Mexican Grill (2.75%), Woolworths (2.75%), and Sysco (2.57%).
The ETF comes with an expense ratio of 0.75%.