In recent years, the concept of socially responsible investing (SRI) has gained significant traction as investors increasingly seek to align their financial objectives with personal values. Betterment, a prominent investment platform, launched its first SRI portfolio in 2017. Since then, it has broadened its offerings to include a variety of options tailored to diverse ethical priorities.
Betterment’s SRI portfolios emphasize sustainability and social impact, enabling investors to select from a wide range of strategies.
The platform features three primary portfolios: the Broad Impact portfolio, the Social Impact portfolio, and the Climate Impact portfolio. Each portfolio aims to deliver a comprehensive, low-cost investment solution through exchange-traded funds (ETFs) that align with specific values and goals.
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Components of Betterment’s SRI portfolios
The foundation of Betterment’s socially responsible investing (SRI) strategy is grounded in three essential pillars: environmental, social, and governance, collectively referred to as ESG. This framework evaluates companies across these dimensions to ensure that investments yield financial returns while also contributing positively to society and the environment.
Understanding ESG criteria
ESG criteria guide Betterment in selecting exchange-traded funds (ETFs) for its SRI portfolios. Instead of choosing individual companies, Betterment identifies ETFs recognized by third-party organizations for their compliance with ESG standards. This method allows for a systematic approach to building a diversified portfolio while adhering to ethical standards.
Betterment’s portfolios extend beyond merely avoiding investments in industries associated with negative activities, such as tobacco or weapons manufacturing. They focus on incorporating investments that actively foster positive social and environmental outcomes. Each portfolio adheres to specific socially responsible investing (SRI) mandates that align with the investment strategy’s unique mission.
Understanding the SRI mandates
Betterment’s SRI portfolios are customized to cater to various investor preferences rather than adopting a one-size-fits-all approach. For example, the Broad Impact portfolio encompasses a wide array of environmental, social, and governance (ESG) factors. It seeks to balance investments across all three pillars, ensuring a comprehensive approach to socially responsible investing.
Investment strategies for social and climate impact
The social impact portfolio emphasizes social equity by focusing on investments that empower marginalized communities and promote gender equality. This strategy is implemented through targeted allocations to exchange-traded funds (ETFs) committed to advancing these objectives.
In contrast, the climate impact portfolio focuses on environmental sustainability. This includes investments designed to reduce carbon footprints and support green technologies. By excluding companies heavily involved in fossil fuels and prioritizing funds dedicated to renewable energy, Betterment enables investors to contribute to a healthier planet.
Shareholder engagement as a strategy
Another critical aspect of Betterment’s approach involves shareholder engagement. This strategy allows investors to influence corporate practices through proxy voting and shareholder proposals. While ETF shareholders do not vote directly, fund issuers represent their interests in these matters.
As demand for ESG-aligned investments increases, many fund issuers are adopting engagement strategies to promote responsible corporate behavior. Betterment integrates this shareholder engagement mandate into its portfolios, enabling investors to demonstrate their commitment to sustainability and social responsibility.
Addressing diversification and liquidity
Challenges in socially responsible investing
One challenge in the realm of socially responsible investing (SRI) is maintaining adequate diversification. Many SRI offerings often compromise on this front, making it difficult for investors to achieve market returns. Betterment’s portfolios are designed to provide global diversification while still adhering to SRI principles.
To ensure that investors have access to a variety of asset classes, Betterment includes some funds that do not strictly meet Environmental, Social, and Governance (ESG) criteria, particularly in bond categories. This approach helps enhance overall portfolio liquidity and minimize costs, which are essential for investors seeking optimal returns.
Impact measurement and reporting
The impact of Betterment’s investment strategies
Betterment emphasizes the importance of measuring the impact of its portfolios. The Climate Impact portfolio aims to achieve significant reductions in carbon emissions compared to traditional investment strategies. Data indicates that Betterment’s climate-focused offerings have a carbon intensity that is notably lower than its core portfolios, reflecting a commitment to environmental stewardship.
Aligning financial goals with personal values
Betterment’s socially responsible investing portfolios represent a strategic approach to aligning financial goals with personal values. By focusing on ESG criteria, promoting shareholder engagement, and ensuring diversification, Betterment provides investors with the opportunity to make a positive impact while pursuing their financial objectives.
