How to invest in the sustainable food megatrend with vegan ETFs?Matthias Krey
Food production accounts for a significant share of global greenhouse gas emissions, and plant-based food sources are emerging as compelling alternatives to the environmental degradations of meat production. Vegan-food ETFs (vegan etfs) and other sustainable-food ETFs have followed suit, promising to facilitate investment in companies that produce sustainable, climate friendly food. We’ll look at why this development matters, and how to play it most wisely.
Why consider a sustainable-food ETF?
Greenhouse gas emissions are intimately tied to our dietary choices. Animal products are particularly harmful to the environment, accounting for 16% of global greenhouse gas emissions and 60% of all food-related emissions worldwide. As the human population increases, so will the demand for animal products—some projections call for a 35% increase for animal-based foods by 2050, with a commensurate increase in greenhouse gas production.
This trend is inevitable under current conditions unless we turn in large numbers toward plant-based sources of protein. Thankfully, alternatives to animal-based protein are readily available, and both their production and their popularity are rising steadily. Boston Consulting Group estimates that by 2035, 10% of meat, eggs, and dairy portions served on earth will derive from alternative protein sources.
The move toward alternative proteins may have begun with consumers who choose a more vegan diet, but the growing need to limit greenhouse gas emissions from all sources may well cause this already-growing market to explode. With that growth comes tremendous opportunity for investors. But how exactly should we play the megatrend toward veganism?
Vegan ETFs: has their time come?
As of this writing, two vegan ETFs have established themselves as pioneers in the sustainable-food space. Let’s take a brief look at each.
The US Vegan Climate ETF (VEGN) tracks the Beyond Investing US Vegan Climate Index, focusing on large cap US companies that meet its ESG criteria, screening out companies involved in animal-derived products and animal testing, the production of fossil fuels, or the military and defense. As of June 2021, it claims to represent companies whose greenhouse gas emissions total less than 23% of those produced by companies represented in the S&P 500.
The Rize Sustainable Future of Food ETF (FOOD) tracks the FoxberryTematica Research Sustainable Future of Food Index, and invests in companies that have positioned themselves to benefit from the shift to more sustainable food consumption and production practices. Based in Ireland, FOOD is Europe’s first sustainable-food ETF. While it includes far fewer stocks than VEGN, FOOD’s methodology allows it to consider companies regardless of sector or cap size.
ETFs are based on indexes, each with its own scope and selection criteria. Here is a quick look at the parameters of the two leading vegan ETFs.
|ETF name||Index||Number of stocks in ETF||Source|
|US Vegan Climate ETF||US Vegan Climate Index||270||https://www.veganetf.com/|
|Rize Sustainable Future of Food ETF||Foxberry Tematica Research Sustainable Future of Food Index||45||https://rizeetf.com/funds/sustainable-future-of-food/|
What is the true climate impact of vegan and sustainable food ETFs?
A closer look at the holdings of each of these vegan food ETFs reveals that neither is composed exclusively of Pure Climate Stocks. Our methodology identifies companies that derive 100% of their revenue from products and services that provide express solutions to the climate crisis.
Both VEGN and FOOD include some positions that we find problematic, since they do not qualify as Pure Climate Stocks.
VEGN’s inclusion criteria allow it to include 10 tech companies in its top 10 holdings. A very clear cut case of greenwashing.FOOD’s criteria are more demanding, but allow companies in the fields of agricultural science, agriculture and water management to be included as long as they have the goal of producing more food and packaging with fewer resources and less environmental pollution. This is why from a climate impact point of view both ETFs are not ideal investment candidates.
Climate pure plays for sustainable food: alternative protein stocks
Several individual stocks do qualify as Pure Climate Stocks, and represent good opportunities to gain from the growth of sustainable food production.
- Established in 2009, Beyond Meat is one of the oldest commercial alternative-protein manufacturers, and is among the field’s most prominent players. The company’s Beyond Burger product has established itself as a popular consumer product, and it for example supplies the patties used in McDonald’s McPlant, a meatless burger slated for a limited UK rollout in October 2021. Beyond Meat is included in the VGEN ETF and the FOOD ETF.
- Oatly is the world’s first and largest oat drink company. Its line has expanded over the years to encompass much of the dairy spectrum, including frozen products and spreads. The Malmö, Sweden-based company sells its products in more than 20 countries.Oatly is included in the FOOD ETF.
- Eat Beyond is a Vancouver, Canada-based investment firm whose portfolio includes both private and publicly listed companies. It bills itself as the world’s first investment issuer to focus exclusively on alternative food companies.
- The Very Good Food Companyis based in British Columbia, Canada. It comprises The Very Good Butchers, which produces minimally processed vegan meats, and The Very Good Cheese Company, an artisan vegan cheese producer. It sells its products online and through a rapidly growing network of 800+ retail outlets and counting.
- BurconNutraScience develops and produces plant-based proteins for use by commercial food producers. Its Manitoba, Canada-based production facility is the first in the world to produce food-grade canola proteins. It holds 296 patents, including 73 in the US, and has 212 pending applications.Let’s take a closer look at thebasic financials for the stocks we have discussed in the table below:
All of the 5 Pure Climate Stocks in the alternative protein area are in the investment phase. They are not making a profit as they focus on scaling production and expanding sales. The difference in the market capitalization between Beyond Meat and Oatly on one side and the Canadian stocks on the other side reflects the current market reach and the growth potential.
The US Vegan Climate ETF (VEGN) and Rize Sustainable Future of Food ETF (FOOD) are pioneers in the sustainable-food space. But as we have shown both VEGN and FOOD involve a good degree of greenwashing and do include a very limited amount of climate pure plays, namely Beyond Meat and Oatly. Eat Beyond, The Very Good Food Company and BurconNutraScience have a clear Pure Climate Stock profile and seem interesting candidates for those wanting to consciously invest in single companies that can benefit from the vegan megatrend.
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