Betterment has made significant strides in the realm of socially responsible investing (SRI) since it launched its first portfolio in 2017. The company has expanded its investment choices, enabling individuals to align their financial goals with their ethical values. Betterment currently offers several SRI portfolio options, including the Broad Impact portfolio, the Social Impact portfolio focused on social empowerment, and the Climate Impact portfolio aimed at environmentally conscious investments.
These portfolios utilize a mix of exchange-traded funds (ETFs) that provide a diversified, cost-effective solution for investors seeking to make a positive impact. Betterment is committed to refining its offerings continuously, as more data becomes available and the market for SRI funds expands, ensuring that investors can engage in responsible investing without sacrificing returns.
Core principles of Betterment’s SRI approach
At the heart of Betterment’s SRI strategy are three fundamental dimensions that guide their portfolio construction. First, SRI encompasses a broad concept of investing aligned with personal values, often referred to as sustainable investing. Secondly, the investment strategy is grounded in Environmental, Social, and Governance (ESG) criteria, a framework evaluating companies based on their measurable performance in these areas. Lastly, Betterment enhances its ESG investing framework by incorporating methods of shareholder engagement, ensuring investors not only choose responsible companies but also influence corporate behavior.
Understanding ESG criteria and portfolio mandates
Betterment’s SRI portfolios are built upon a set of internal SRI mandates that reflect sustainable investing goals. These mandates categorize investments based on their alignment with ESG principles. For instance, portfolios may include ETFs that track indices optimized for ESG performance, contributing to a balanced representation of environmental, social, and governance aspects. Specific mandates focus on areas such as carbon footprint reduction, fossil fuel divestment, gender equity, and social equity, reflecting a nuanced approach to responsible investing.
The Fossil Fuel Divestment Mandate aims to exclude companies heavily invested in fossil fuels, while the Gender Equity Mandate seeks to promote investments in companies committed to advancing gender equality. These targeted mandates ensure investors can choose portfolios aligned with their specific ethical priorities while maintaining a diverse investment base.
Shareholder engagement and its significance
One of the standout features of Betterment’s SRI portfolios is the emphasis on shareholder engagement. This process allows investors to influence corporate practices through mechanisms such as proxy voting and shareholder proposals. Although ETF shareholders do not directly vote on company matters, fund issuers act on their behalf to advocate for socially responsible practices. This engagement fosters an atmosphere where investors can express their preferences for responsible corporate behavior.
Challenges and strategies in SRI investing
Despite the growing popularity of SRI, many offerings still face challenges, such as sacrificing diversification or failing to provide avenues for collective action towards ESG change. Betterment addresses these concerns by ensuring its SRI portfolios maintain global diversification, even incorporating some funds without explicit ESG mandates when suitable alternatives are not available. This commitment to a broad investment base enables investors to achieve market returns while supporting socially responsible initiatives.
Moreover, Betterment recognizes that some investors may prioritize the exclusion of specific companies over broader ESG considerations. For this reason, the firm offers three distinct portfolios tailored to various investment philosophies. The Broad Impact portfolio aims for a balanced approach that considers all three ESG dimensions, while the Social Impact portfolio sharpens the focus on social equity. In contrast, the Climate Impact portfolio centers on environmental sustainability and carbon emission reduction.
Portfolio construction and asset allocation
To enhance the effectiveness of its SRI portfolios, Betterment conducts regular assessments of the available funds. The selection is based on criteria such as liquidity and cost, ensuring each portfolio remains competitive in the marketplace. The Climate Impact portfolio incorporates ETFs that align with various mandates, including carbon footprint reduction and green financing. These investments allow investors to support environmentally friendly initiatives while maintaining proper diversification.
Additionally, the Social Impact portfolio focuses on socially responsible ETFs that promote social empowerment. This includes investments in funds that prioritize gender diversity and support veteran-owned businesses. By investing in these portfolios, individuals can align their financial decisions with their values without compromising on diversity or returns.
These portfolios utilize a mix of exchange-traded funds (ETFs) that provide a diversified, cost-effective solution for investors seeking to make a positive impact. Betterment is committed to refining its offerings continuously, as more data becomes available and the market for SRI funds expands, ensuring that investors can engage in responsible investing without sacrificing returns.0