Beyond Investing has launched the US Vegan Climate Index, an equity index that screens US large-cap stocks for veganism and environmental criteria.
Claire Smith, chief executive officer, Beyond Investing.
Funds that incorporate environmental, social and corporate governance (ESG) screening are becoming one of the fastest growth segments within the broader ETF industry.
Development in the space has seen the incorporation of ESG into smart beta processes, the expansion of ESG into fixed income products, and a wide range of thematic ESG funds (such as those targeting minority rights or women’s empowerment).
However, up until now, not much has been done in terms of indices tailored to vegans, and an ETF tracking the US Vegan Climate Index would certainly be a first for the industry.
The new index will be calculated by index provider Solactive and published on a real-time basis under the Bloomberg ticker ‘VEGAN’.
The starting universe for the index is the Solactive US Large Cap Index (a proxy for the S&P 500 Index). The methodology strips out those companies whose activities are incompatible with values of veganism and climate-consciousness.
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 and 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 companies in the military and tobacco industries.
Once all the screens have been completed, the index weights the remaining constituents by market capitalization.
A proportion of net profits from licensing the index, data and the issue of financial instruments will be devoted to the Beyond Cruelty Foundation, a Swiss-based Foundation whose donations will be put towards animal advocacy and saving animals from harm and exploitation.
The exclusions remove approximately 41% of the market capitalisation of the Solactive US Large Cap Index.
The average market capitalisation of the 308 companies currently listed on the US Vegan Climate Index – which include Google, Facebook and Microsoft – is $255bn, slightly higher than the Solactive US Large Cap Index.
The index was created by three European vegan finance professionals from Beyond Advisors, the research arm of impact investing platform Beyond Investing, spearheaded by investment analyst Claire Smith in Geneva.
“For the first time, the proportion of the US stock market whose business models harm animals and the environment can be identified,” said Smith. “With reports suggesting 6% of the US population identify as vegan, Beyond Advisors anticipates demand for financial products based on this index to serve the requirements of vegans and environmentalists who do not want their money supporting businesses whose activities they oppose.”
An environmentally positive solution
According to Beyond Advisors, when compared with exposure to the Solactive US Large Cap index, an investor in the new index will avoid funding the slaughter of 13 animals a year for every $1,000 invested.
The US Vegan Climate Index also demonstrates better metrics on carbon emissions, water use, waste products and the avoidance of environmentally and socially damaging companies when compared with the parent Solactive index. A far greater proportion of the new index is devoted to companies that adopt environmentally positive solutions.
Beyond Advisors anticipates interest not only from vegans but from environmentalists who are conscious of the damage done by animal agriculture, the second largest contributor to greenhouse gases after energy and heat production from fossil fuels.
“Extraction and burning of fossil fuels is a leading contribution to environmental pollution and climate change, which is as damaging to animals as it is to humans,” noted Smith. “Animal agriculture is the leading cause of species extinction, ocean dead zones, water pollution, and habitat destruction, as well as also contributing to climate change through greenhouse gas emissions.”