Ratings from a vegan perspective

Etats-Unis
On the 05/18/20 at 7:53AM

by

Adrien Paredes-Vanheule

The emergence of vegan-focused investment funds is inevitable according to Vegan Finance's founder Van Dinh Tran.

Air France-KLM is rated -1. Here we are not talking of the airline company’s debt or sustainability rating but of its vegan score granted by Vegan Finance, a veganism-focused rating agency established in the US in early 2018. Air France KLM does not deal much with animals but its -1 score reflects the fact that it is shipping monkeys for lab experiments and that the firm’s CEO, confirming the information, said the company would not cease to do so thus making it vegan non-compliant in Vegan Finance’s screening.

In its cross-sector ESG risk heat map released last October, Moody's solely referred to veganism when highlighting the moderate risk faced by the agricultural and protein industry. "The protein industry faces the risk of opposition to the operation of slaughterhouses and meat-processing plants close to communities. Changing consumer patterns such as veganism and vegetarianism are incipient and have had a very limited impact on the protein industry," penned the rating agency, adding that political agenda in that sector will be dealing with health and safety concerns. If veganism has emerged as a trending lifestyle philosophy in recent years, asset managers have not really embraced it so far in their funds - even in thematic equity funds - whether they apply ESG or SRI filters. Though, the initial public offering of US plant-based food product company Beyond Meat had encountered success in 2019 while many investors now await that of its competitor Impossible Foods. But veganism goes beyond food and vegan-focused investment vehicles have yet to land in the European fund market.

The world’s first vegan-friendly US Vegan Climate ETF, launched by Beyond Investing last September and not available in the EU, may have drawn a path for such products in the ‘sustainable’ era of the asset management industry. This is the belief of Van Dinh Tran, who founded Vegan Finance and started to look at ratings from a vegan standpoint in 2017.  “It was then mostly difficult for a vegan individual or any person, who wanted to exclude animal exploitation from his investments, to quickly identify which companies would respect his or her values, without making many researches. If and how a firm’s activities harm animals represented a lot of information that were scattered between mass media, non-profit organizations, investment-research agencies and companies themselves through their CSR reports,” he says to Asset News.

Three stages of business development

Tran outlines that at the time Vegan Finance launched, existing tools to address vegan queries over stocks were incomplete. Vegan investors were not able to check multiple issues such as live animal transportation, animal agriculture or animal-related controversy before investing. The firm’s main purpose is to identify which security is vegan compliant or not, and to explain why, says its founder who wishes to make this information “accessible to the man in the street.” Thus, individuals can access freely ratings and explanations on Vegan Finance’s website. Tran believes that the rise of individuals’ awareness around animal issues will influence the behaviour of professional investors towards companies and their policies.

“Under individuals’ pressure or attracted by the perspective of collecting more money, some professional investors will decide to make vegan funds. Screening a trustworthy vegan universe will be then necessary. Professional investors may then be interested in our vegan ratings and analyses built from a consistent methodology, since their investment choices have to be justified to internal controllers, external auditors, shareholders, and stakeholders,” argues Tran, adding that higher fees will be asked to professionals for tailored-made services.

“In a third stage, when professional investors will integrate vegan ratings into their investment process, it is clear that listed and unlisted companies will take into account our analyses. Rated companies are a most important audience for exchange of facts and viewpoints but in order to avoid any risk of pressure or conflict of interest, Vegan Finance does not have and does not plan to target revenue coming from rated companies,” he develops.

-2 to +2

Vegan Finance is still in its first phase of development, which for Tran means analysing more firms and communicating the results to individual investors. To date, Vegan Finance has rated 140 stocks, most of which were or are part of the main French exchange index CAC 40 that helped the firm test its methodology. The alternative rating agency has also started to rate S&P 500 stocks. Vegan scores are granted on a scale from -2 to +2, the firms being vegan non-compliant if they are rated -2, -1 or 0 and vegan-compliant if their score is +1 or +2. “The difference is that -2 corresponds to a massive, repeated, and/or direct harmful activity for animals; -1 corresponds to occasional and limited harmful business; 0 corresponds to a transition state, but its assessment is still vegan non-compliant because the commitment is only a verbal declaration, and harming animals will last until the change becomes real,” says Tran. In his view, if a company is exploiting or harming animals, beneficial aspects like green-related investments or initiatives would never totally offset harmful ones, therefore the company can never be rated vegan compliant.

As for the vegan friendly ratings, a +1 is awarded to companies whose activities do not harm animals at all but tolerate the risk of harm. The +2 rating is granted to companies which in addition to not harming animals through their activities are launching products or services to protect them. As an example, Saint Gobain is rated vegan friendly with a +2 score given the company has created a special glass “4bird” to prevent any bird collision with transparent glass. To assess how vegan compliant a stock is, Vegan Finance relies on many sources including company, NGOs and media reports, all being double-checked. “In addition we check if the targeted company has answered to the issue by any comment or commitment,” Tran says.

FedEx does not ship live animals to slaughterhouses but it is rated vegan non-compliant because it still ships hunting trophies.

Van Dinh Tran, Vegan Finance

None of the companies rated so far have not contacted Vegan Finance to improve their vegan ratings. The firm nonetheless discusses with companies to find out more about their activities involving animals. “For instance, while recently rating the freight sector, we have contacted a FedEx representative to make sure that the firm does not ship live animals to slaughterhouses. Nonetheless, the company is rated vegan non-compliant because it still ships hunting trophies,” he points out.

Tran highlights that vegan ratings at this stage are still not a threat for the financing of listed companies, observing that companies are influenced by institutional investors, themselves influenced by non-profit organisations. He cites the example of French beverage group Pernod Ricard which announced last January that it would stop bullfights’ sponsoring. “The decision was made under the pressure of its investor Elliot fund, which had pressure from PETA and other anti-bullfights associations. In this map of influencers, Vegan Finance role is more to inform non-professional and professional investors that would like to embed a vegan or pro-animal screening in their investment decision,” says Tran.

Future vegan funds more ambitious than ESG/SRI funds

Vegan Finance’s founder sees Beyond Investing’s launch of the US Vegan Climate ETF last September as an “historical first step” and firmly believes that other vegan passive and active funds will follow. In addition, Tran notes that the asset management industry is facing growing pressure from the public that may quickly turn into a demand for vegan financial products which will not only address vegans but also animal and environment lovers. How would it fare with SRI and ESG funds then ? Tran acknowledges these types of funds have played a significant positive role regarding governance and social practices of listed companies but are still lagging on the E [environmental, ed.].

“Comparing with traditional ESG and SRI funds, vegan funds are more ambitious because they exclude both fossil energies and all forms of animal exploitation as the animal agriculture. Fossil energy is excluded because oil and gas companies significantly harm the environment, and it is known that the quickest way to kill the wild animals is to destroy their habitat, which is their shelter and the place where they find food and can reproduce,” Vegan Finance’s founder says.

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