Socially responsible investing (SRI) has gained significant traction among investors aiming to align their financial goals with personal values. Betterment, an investment platform, launched its first SRI portfolio in 2017 and has since expanded its offerings to include various options focusing on sustainability and social impact.
Betterment’s SRI portfolios comprise three main investment options: the Broad Impact portfolio, the Social Impact portfolio, and the Climate Impact portfolio. Each portfolio addresses specific areas of concern while ensuring a diversified and cost-effective investment strategy through exchange-traded funds (ETFs).
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Understanding Betterment’s SRI approach
The foundation of Betterment’s SRI strategy is built on three core dimensions that guide portfolio formation. SRI is widely recognized as values-driven investing, and many specialists advocate for the term sustainable investing to encompass this field. Additionally, Betterment employs a framework known as ESG, which stands for Environmental, Social, and Governance. This framework assesses a company’s performance using quantifiable metrics across these three critical areas.
Instead of handpicking individual companies, Betterment relies on third-party classifications to identify suitable ETFs characterized as ESG-compliant. They also consider their internally developed SRI mandates, which reflect specific sustainability objectives, to guide their ETF selection process.
Key SRI mandates and their implications
One of the critical aspects of Betterment’s mandates is the exclusion of companies engaging in activities contrary to the values of socially responsible investing. This includes industries such as tobacco, firearms, and military weapons, as well as companies involved in ongoing ESG controversies. However, SRI encompasses a broader commitment to promoting positive social outcomes.
Betterment constructs its SRI portfolios with specific mandates to ensure investments align with its values. For instance, the Fossil Fuel Divestment Mandate excludes stocks from companies heavily involved in fossil fuel extraction. Similarly, the Gender Equity Mandate prioritizes investments in firms that advocate for gender equality within their workforce.
Engagement through shareholder advocacy
A unique aspect of Betterment’s SRI portfolios is their emphasis on shareholder engagement. Shareholders can influence company decisions through mechanisms such as proxy voting at annual meetings. While ETF shareholders do not vote directly, fund issuers actively participate in the voting process on behalf of investors. This engagement strategy is essential for promoting socially responsible practices within the corporate landscape.
Betterment integrates a Shareholder Engagement Mandate into its portfolios, allowing investors to express preferences for socially responsible business practices. As demand for ESG engagement increases, more fund issuers adopt proactive approaches in their interactions with companies, advocating for changes that align with investors’ values.
Portfolio options and their characteristics
For those interested in a comprehensive approach, Betterment offers the Broad Impact portfolio, which balances all three ESG dimensions. This portfolio emphasizes diversification while considering various aspects of social responsibility. In contrast, the Social Impact portfolio focuses on social equity, with allocations prioritizing gender diversity and veteran support.
The Climate Impact portfolio caters to investors concerned with environmental issues, specifically addressing carbon emissions and promoting sustainable practices. Each portfolio is meticulously crafted to maintain global diversification, ensuring that investors do not sacrifice returns for their values.
Liquidity and cost considerations
Betterment’s SRI portfolios comprise three main investment options: the Broad Impact portfolio, the Social Impact portfolio, and the Climate Impact portfolio. Each portfolio addresses specific areas of concern while ensuring a diversified and cost-effective investment strategy through exchange-traded funds (ETFs).0
Betterment’s SRI portfolios comprise three main investment options: the Broad Impact portfolio, the Social Impact portfolio, and the Climate Impact portfolio. Each portfolio addresses specific areas of concern while ensuring a diversified and cost-effective investment strategy through exchange-traded funds (ETFs).1
