As I was talking with one my hippie clients – I lovingly call her a hippie because she’s a vegan, doesn’t drive, and is an advocate for climate change – she made very clear to me that her portfolio must not contain any oil, gas or coal companies, as they are linked to more than one-third of all greenhouse gas emissions today.
I mentioned in my previous article that the problem with ESG Index ETFs is they may contain very broad and loose standards, and some may question the screening process.
For example, ConocoPhillips is one of the holdings in the iShares MSCI USA ESG Select ETF, meanwhile they are included in the top 20 companies that contribute to one-third of global greenhouse gas emissions.
As the demand for higher standards and stricter screening policies emerge, funds for everyday investors are popping up as well.
Beyond Investing, a vegan and cruelty-free investment platform, launched the US Vegan Climate ETF (NASDAQ: VEGN) back in September 2019, the first vegan ETF on the market adhering to a more stringent set of rules compared to ESG (environmental, social, and governance) standards.
So, what are these strict rules? According to Beyond Investing’s website, this selective index screens companies involved in animal harm & exploitation, fossil fuels, environmental damage, and human rights abuse.
This leaves roughly 275 public companies in the U.S. that meet their criteria.
Combined, these companies emit less greenhouse gases, less waste, and utilize less fresh water compared to the overall S&P 500 index.
(www.veganetf.com as of 31 December 2019)
This index includes Beyond Meat, Tesla, and a number of technology companies like Microsoft, Facebook, Apple, Intel, and AT&T. There are also financial institutions like Visa, MasterCard, and Bank of America.
TOP 10 HOLDINGS
|VERIZON COMMUNICATIONS INC||2.88%|
|UNITEDHEALTH GROUP INC||2.87%|
|BANK AMER CORP||2.77%|
(www.veganetf.com Holdings as January 31 2020)
Just a word of caution – this fund is very small. $15 million in assets are under management with 525,000 shares outstanding. And this fund contains around 275 companies in the U.S, so from a geographical standpoint, it’s not very diverse.
Liquidity for this ETF will be a challenge, meaning you may not be able to get in and out of it quickly. If you wanted to get out, you would likely have to pay a premium or sell for much less than its underlying value. This is because there are less buyers and sellers trading this ETF on any given day.
This ETF is nowhere near as popular as, for example, the iShares Core S&P 500 ETF, which is a $207 billion fund. Roughly 4 million shares of that fund are bought and sold daily.
Part of a good investment strategy is to diversify geographically, which is what the iShares MSCI ACWI Low Carbon Target ETF offers. That ETF targets companies globally that are less dependent on fossil fuels. 45% of that fund contains companies outside of the U.S. It’s still a relatively small fund with around $500 million in net assets, but it’s much larger than VEGN, so you’ll get some liquidity with that one.
Keep in mind that no fund is perfect. The reality is we can’t be completely conflict and guilt-free regarding our environmental footprint, unless you live out in the woods and grow your own kale – and you’re not reading this article on your phone.