We analyzed 3 "green ETFs". This is what we found inside

We analyzed 3 "green ETFs". This is what we found inside

Here’s how to know if an ETF is green or not

Sabrina Haumann

Sep 28, 2021



min read

Question to the audience: Does everyone know the difference between a “green ETF” and “greenwashing”?

Well of course! Green ETF is a sustainable investment product. Greenwashing (in finance) is a marketing spin to make people believe an investment product is sustainable.

But what if we told you some green ETFs aren’t really that green?

That, in fact, with the intention to do good, green ETFs sometimes do more harm than good.

And that, in other words, not all green ETFs are created equal.

Here at Cooler Future, we recently had a look at the three trend ETFs to see what’s inside. Want to be surprised? Then keep reading.

The Speed Read:

1. ETFs stand for “exchange-traded funds” and they allow you to invest in an entire collection of assets. ETFs have their own ticker, just like stocks.

2. Often, ETFs are characterized by multiple advantages: favourable price, automatic diversification, and “thematic investing made easy”.

3. However, the recent popularity of ETFs created a battlefield for ETF providers. Trend ETFs have been created to reach customers and adhere to society’s megatrends such as veganism, inclusion, and women empowerment. But not everything that glitters is gold!

4. In fact, most of these trend ETFs, which call themselves “vegan” or “sustainable” still own major stakes in tech giants, and large-cap companies, and are barely made up of truly green companies. On a closer glance, they seem to track the S&P 500 Index but charge their customers a ten times higher expense ratio for the vegan label.

What is a 'green ETF'?  

First things first, let’s define what a green ETF really is.

ETFs stand for "exchange traded funds" and, in layman’s terms, allow you to invest in a collection of assets, pooling your money with other investors. ETFs are listed on exchanges and traded over the course of the day. They have their own ticker, just like stocks, and some of the world’s most famous ETF is S&P 500: The Standard and Poor’s 500 that tracks the performance of 500 largest publicly-listed companies in the US.

Often, ETFs are characterised by multiple advantages. First and foremost, they are offering a favourable price. Then, it’s automatic diversification. And then, of course, it’s “thematic investing made easy”.

It is therefore not surprising that the number of ETFs worldwide has roughly quadrupled in the past 10 years. In 2008, there were 1,622 ETFs worldwide; in 2020 there were already 7,602 ETFs globally.

Now, a green ETF works just the same way but it would focus on companies that promote social and environmentally conscious policies and business practices. Companies that are “green”.

Green ETF or greenwashing?  

Now, it’s important to emphasize that each ETF has its own criteria for determining the eligibility requirements for assets because there are no standardized approaches (yet). And this precisely is why a ‘green label’ doesn’t necessarily imply ‘green content’.

Currently, there are no strict rules regarding which companies or investment instruments are officially green. Many of the considerations are simply a matter of opinion. And this is why so many ETFs make use of this ‘opinion loophole’ to sell their investment products as ‘green’.


Typically refers to a company’s behaviour or activities that make people believe that a company is doing more to protect the environment than it really is.

A practical and not financey example of greenwashing is H&M’ Conscious Collection. With this collection, H&M advertises that they use recycled materials. Sounds great at first, doesn't it? And yet, of all of the material used by H&M to make its estimated half a billion garments a year, only 0.7 per cent is recycled material.

Is this greenwashing?


But the interesting thing about greenwashing is that it’s not limited to the fashion or food sectors only the same also applies to financial and capital markets.

In finance, greenwashing is fueled simply by a lack of knowledge on the part of the investor about what sustainability really is and how it is currently being implemented (or not) in investment products. The common denominator behind greenwashing across several industries is that it is not only misleading, but it’s also really not supporting sustainable design or a circular economy. Thus, environmental problems stay the same or, more likely, get even worse, as greenwashing often sucks up airtime and misdirects well-intentioned consumers down the wrong path.

Ok, so how to know if an ETF is green or not?

Well, first of all, as an investor, you should make sure to pay close attention to what the investment products of your choice actually contain inside. The devil is often in the details. If you don't pay close attention, you often buy companies via an ETF that you yourself might classify unsustainable.

Of course, there’s ESG criteria to help. If an ETF adheres to ESG criteria, it claims to screen and choose the companies to invest in upon Environmental, Social and Governance criteria. But watch out sometimes ESG might also stand for Extra Strong Greenwashing criteria instead.

You might think that your sustainable ETF would exclude sectors such as fossil fuels and “sin” stocks — weapons, drinks, and tobacco. It may come as a surprise that almost all sustainable ETFs do not have any hard sector exclusions.

Need an example?

The S&P Dow Jones Sustainability Indices are considered by many to be the best benchmark for ESG investing — and yet, there’s British American Tobacco in it. The same is true for funds. The Vanguard SRI European Stock Fund at the end of November had 6% in oil and gas production. If you think of yourself as an ethically responsible investor, such breaches are shocking. You will need to ask if your ESG fund or index owns any drinks, gaming, tobacco, oil, gas, mining, fossil-fuel burning utilities, or arms companies.

A few words on megatrends investing

Megatrends are profound, structural changes in the global economy changes that increasingly influence our daily lives. ETF providers are actively reacting to this development and now offer ETFs with which investors can bet on the proven megatrends.

Just consider the enormous momentum that veganism has gained in recent years, for example. Veganism is precisely the kind of megatrend that has not only ensured that there’s hardly any restaurant in town that doesn’t offer vegan alternatives on the menu, but also that even investors can remain true to their preferred vegan way of life.

What are other megatrends in investing?

Racial and gender diversity, human rights, female empowerment, LGBTQ+, climate change you know, things that do matter in the world. So for more and more investors out there, these aspects are also important when investing their money. That's why there are also many ETFs out there that claim to track companies that make special efforts in these “megatrends”.

Now, a whole “trend ETF” industry has arisen to cater to this shift in consumer taste, and it comprises everything. You can find vegan ETFs, LGTBQ ESG ETFs, Women Empowerment ETFs anything you want, really.

For instance, there's a fund in town called the U.S. Vegan Climate ETF, issued by Beyond Investing, that has “picked out the vegan gems so you don't have to”. Or at least it claims to have done so.

We took a closer look at this, as well as two other trend ETFs, to see what’s inside. Want to find out? Keep reading:

Under scrutiny: Trend ETFs  

Imagine a world with no exploitation of animals or destruction of the environment. An animal friendly and climate conscious portfolio for all investors. Avoiding large-cap problem companies and investing in mid-cap companies providing solutions.

This is the first thing that appears on the website of the US VEGN Climate ETF (VEGN). What a great hook! But before we tear this apart, what is VEGN actually about?

VEGN seeks to track the Beyond Investing US Vegan Climate Index (VEGAN). In a way, the name of the ETF is a bit misleading, as it implies that the companies there are strictly tied to vegan products (like Beyond Meat (BYND)). But this is not entirely the case.

On the ETF factsheet, it says that by tracking the index, VEGN seeks to invest in companies that offer (1) a humane approach, (2) are animal friendly, and (3) good for the environment. They dive even deeper in their annual report, stating that “taking the largest 500 stocks in the U.S. market, VEGAN excludes companies engaged in animal exploitation, defense, human rights abuses, fossil fuels extraction and energy production, and other environmentally damaging activities''. There are other impact metrics in the factsheet being reported on too:

Impact metrics of  US VEGN Climate ETF


This, by no doubt, looks great. But it's the fund's direct appeal to investors that's most eye-catching. In the original press release for the fund's launch, emphasis is put on the fact that your investment is making a direct impact on animal cruelty:

“Through its screening, the US Vegan Climate Index participates in no business activity that harms animals. As compared with an exposure to the Solactive US Large Cap index, an investor in this new index will avoid funding the slaughter of 13 animals a year for every $1,000 invested.”

(It’s not quite clear how they came up with this number, but lets leave it aside and accept that it is indeed a nice impact measure for people who want to stop animal cruelty.)

Let’s look at something that is a bit more startling: this ETF’s holdings. What’s inside?

Once cut open, the ETF's largest holdings contain companies like Tesla, Microsoft, Paypal, Visa, and Alphabet (Google), which, according to our calculation, together make up over 20% of the entire portfolio and which are not necessarily known for their sustainable practices.


What was it they said in the factsheet again? “Avoiding large-cap problem companies and investing in mid-cap companies providing solutions.”

Hypocritical? To say the least!

Companies like Tesla, Alphabet or Microsoft are NOT unproblematic when it comes to sustainability. Of course, on a high level note, they are technicallyvegan. But is any tech company suddenly vegan now? Just because your business model has nothing to do with meat, is the “I’m vegan” suddenly a default definition, so you can turn a blind eye to massive failures on other sustainability and human rights criteria?

Dig around a bit deeper and you will see that this “vegan green ETF” mostly just closely tracks the S&P 500, witht the difference being that the Total Expense Ratio fees for the vegan label is about 10 times higher than S&P 500.

Put simply, the Vegan Climate ETF is little more than a polished  S&P 500fund, an opportunity to invest in the big Wall Street players without having to stake a claim in oil companies, leather-and-fur manufacturers, or any other organization that does business by way of killing or exploiting animals directly. Still, it comes as a surprise that a fund whose image appears to be quirky and millennial-friendly should include such behemoths as JPMorgan Chase, Facebook, and Microsoft.


There is nothing bad with investing in the companies mentioned above. However, what is supposed to be uncovered here is the greenwashing behind many trend ETFs. Everyone has to decide for themselves what they want to invest in. What is not so cool is to present yourself as “green” and not live up to it in the end — that is, and remains, greenwashing.

And it gets even wilder: VEGNs holdings are not only the same as those of the S&P 500. No, there are two other green ETFs out there which have surprisingly similar holdings.

The first is the YWCA Women’s Empowerment ETF (WOMN). WOMN tracks the Morningstar Women’s Empowerment Index, which is designed to provide exposure to companies worldwide with strong policies and practices in support of women’s empowerment and gender equality. And as we look at its holdings, what do we find?

Top 10 holdings from YWCA Women’s Empowerment ETF

Seems familiar, doesn’t it? Here, Microsoft again takes the top position, followed by Apple. And again, let’s not forget about Alphabet.

Okay, whatever so what if the holdings are mostly the same tech companies? This should be fine if the objective was still fulfilled, right?

But as an investor who wants to include women empowerment into his or her main investment decision criteria, you’d probably be interested in the following: According to a report by gender equity watchdog Equileap, the tech sector as a whole performed below average when it comes to gender balance in the workforce. The report highlighted some of the industries largest companies as lagging behind: globally, Google ranked No. 563 and Apple No. 678 - and both of these companies are taking on major positions in the ETF’s holdings.

The last ETF we are looking at for now is the LGBTQ 100 ESG Index (LGBT). This ETF was published in June 2021, the time when Pride Month met Wall Street. According to the factsheet, this ETF tracks the top 100 hundred LGBTQ equality-driven U.S. companies from a universe of 500 publicly-traded large-cap corporations. The companies are also screened to ensure they meet ESG screens.

And, once more, let’s reveal the top holdings:

Top 10 holdings from LGTB ETF

What do we see? Oh well, the usual suspects again: Tesla, Apple, Microsoft, Alphabet, Paypal… Getting kind of tired repeating these names at this point.

In fact, if you list the holdings of each of the three ETFs next to each other, you’ll see something really surprising. For example, LGBT has only 18% of unique securities, and 82% (!) of its holdings can be found in WOMN and VEGN as well. The latter two also hold 72 securities, which are exactly the same.

Every green ETF analyzed had an overlap with the other one.

How is it possible that so many holdings are the exact same?

Well, we can only make assumptions here. But the most obvious one, is simply that all three ETFs are more or less tracking the S&P 500 but their sustainable label is what costs you, as an investor, a lot more.


The high amount of green ETFs out there and the recent growth of ETF popularity has created a kind of battle ground for ETF providers. Everyone is battling for assets and a lot of customer acquisition depends on good marketing. Names such as “vegan”, “women empowerment” or “LGBT” try to get you in the door, but once you enter, you might be surprised at what's awaiting you inside: your green ETF is rather properly greenwashed than truly vegan. And its not-so-vegan holdings aren’t exactly what investors may be expecting.

Of course, it has to be acknowledged that there are not so many publicly-traded vegan companies out there that you can actually make an index. However, it is not at all okay (and not the point of sustainable investing) to lure your clients with megatrends and then charge them high costs to hold an ETF that is nothing more than a polished S&P 500 ETF. To avoid this, investors should always take a look inside the investment product and check what the green ETF they’re investing in actually entails.

Don’t miss out.
Sign up for your weekly dose of financial news.
Thank you! Your submission has been received!
Please confirm via the email we just sent you.
Oops! Something went wrong while submitting the form.