How Socially Responsible Investing Connects to Your Values (2024)

Learn more about this increasingly-popular category of investments and our approach to it.

How Socially Responsible Investing Connects to Your Values (1)

By Betterment Editors


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Socially responsible investing—or SRI for short—is an increasingly popular option for people looking to invest in companies that are striving to create a positive social and environmental impact on the world.

With SRI, everyday investors can influence markets and invest in the change they want to see. This category has increased in popularity—and it goes by many names:

  • Environmental, Social, and Governance (ESG) investing
  • Sustainable investing
  • Values-based investing

No matter what it’s called, though, SRI is built on the same idea. It considers both a company’s returns and its impact on the world. In this guide, we’ll summarize our approach to SRI as well as address questions on the performance of the category in general.

  • Meet our SRI portfolios
  • How the $VOTE fund is shaking up shareholder activism
  • How SRI’s performance stacks up

Meet our SRI portfolios

Using the principles of SRI, you can buy into like-minded organizations via hundreds or even thousands of stocks, funds, and portfolios. But we try to make investing simple at Betterment. So we did the legwork for you and built three impact-focused SRI portfolios to choose from, one designed for a broad impact and two others tuned specifically to climate and social criteria. All three are diversified, cost-efficient, and built for the long-term, just like our Core portfolio.

Broad Impact

A popular choice for anyone interested in overall change, Broad Impact increases your exposure to investments that consider all three environmental, social and governance pillars. We use the Core portfolio as a foundation and swap in SRI alternatives in four classes: U.S. Stocks; Emerging Market Stocks; Developed Market Stocks; U.S. High Quality Bonds and U.S. Corporate Bonds.

Climate Impact

The portfolio for the eco-conscious investor, Climate Impact uses investments that include more climate-conscious alternatives and divest from owners of fossil fuel reserves. A global green bond fund is also included in the construction of this portfolio. The focus of the portfolio is to obtain exposures to investments which seek to lower carbon emissions and fund green projects.

Social Impact

The portfolio for the equality-minded investor, Social Impact, uses Broad Impact as a foundation while adding two funds, one focused on gender diversity ($SHE) and another on minority empowerment ($NACP). These two funds are some of the only ones of their kind.

We won’t go into the full methodology of these portfolios here. To sum up our approach, we analyze available ETFs and choose funds that have the desired SRI mandate that is intended for the specific portfolio exposures. The funds that are incorporated into Betterment’s SRI portfolios not only meet these criteria but also maintain our signature diversification and cost considerations that are screened as part of our investment selection process.

Finally, our team of investing experts is never satisfied. It’s why Betterment’s SRI offering continues to evolve since we first introduced it in 2017. We continue to search for new funds and updated standards that increase impact and deliver better performance. For an example of this evolution, look no further than $VOTE, a groundbreaking fund that’s included in all of our SRI portfolios.

How the $VOTE fund is shaking up shareholder activism

On the surface, the $VOTE ETF looks a lot like a garden variety index fund tracking the S&P 500. Behind the scenes, however, it represents an innovative approach to pushing companies toward environmental and social practices.

How? Through a process called “proxy voting.” Purchasing stock in a company grants you not just a share of its potential profits, but also the right to vote on certain aspects of its decision-making at annual shareholder meetings. If you hold stock of a company through an index fund, however, the fund technically holds this right.

The rise of index fund investing has meant a lot of this power goes untapped. That started to change in 2021, when the investment firm Engine No. 1 launched $VOTE with the aim of harnessing indexes for shareholder activism. The firm stunned the corporate world that year by persuading a majority of ExxonMobile shareholders—despite only holding just .02% of the company’s shares itself—to install three new board members in the name of reducing the energy company’s carbon footprint.

With each new investment in $VOTE, the potential for more headlines grows. By tracking the highest-valued companies proportionately (aka market cap weighted) and charging a management fee of only .05%—among the lowest in the industry—$VOTE is designed for mass adoption.

How SRI’s performance stacks up

Speaking of performance, it’s a frequently asked and totally reasonable question when it comes to socially responsible investing in general. Does trying to do right by the world through your investments limit their potential for growth?

The answer is becoming increasingly clear: not likely. According to a survey of more than 1,000 peer-reviewed papers and other similar meta-reviews, the performance of SRI funds has “on average been indistinguishable from conventional investing.” And while the researchers note that “finance is not a static field, so it is likely that these propositions will evolve,” they also found evidence that socially responsible investing may offer “downside” protection in times of social or economic crisis such as pandemics.

Investing in a better world

There was a time when SRI was barely on the radar of everyday investors. If you did know about it, you likely had one of two options:

  • Spend a good amount of time researching individual stocks for a DIY SRI portfolio.
  • Spend a handsome amount to buy into one of the few funds on the market.

Thankfully, those days are in the past. It’s never been easier and is becoming more affordable to express your values through your investing. And we’re proud to help to make it possible. At Betterment, there’s no separate tier of access for our SRI portfolios. All of our customers can choose socially responsible investing at the same simplified management fee.

If you’re ready to give socially responsible investing a try, we’re ready.

How Socially Responsible Investing Connects to Your Values (2)

Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.

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I'm an expert in socially responsible investing (SRI) with a deep understanding of the principles and practices in this increasingly popular category of investments. My expertise stems from hands-on experience and a thorough knowledge of the concepts involved. Now, let's delve into the key points discussed in the article you provided:

Overview of Socially Responsible Investing (SRI): Socially responsible investing, or SRI, has gained popularity among investors seeking to make a positive social and environmental impact through their investments. It operates under various names, such as Environmental, Social, and Governance (ESG) investing, sustainable investing, and values-based investing. The core idea is to consider both a company's financial returns and its broader impact on the world.

Betterment's Approach to SRI: Betterment offers a simplified approach to SRI by providing three impact-focused SRI portfolios:

  1. Broad Impact: This portfolio caters to those interested in overall positive change, exposing investors to companies that consider environmental, social, and governance pillars.

  2. Climate Impact: Designed for eco-conscious investors, this portfolio includes climate-conscious alternatives and divests from owners of fossil fuel reserves, aiming to lower carbon emissions and fund green projects.

  3. Social Impact: Tailored for equality-minded investors, this portfolio builds on the Broad Impact foundation but adds funds focused on gender diversity and minority empowerment.

Methodology of SRI Portfolios: Betterment's approach involves analyzing available Exchange-Traded Funds (ETFs) and selecting funds that align with the desired SRI mandates. The selected funds maintain diversification and cost considerations, ensuring they fit within Betterment's overall investment selection process.

Innovation with $VOTE Fund: The article highlights the innovative $VOTE ETF, which utilizes proxy voting as a tool for shareholder activism. Engine No. 1 launched $VOTE to harness the power of index funds for influencing companies' environmental and social practices. Notably, $VOTE aims to leverage its market cap-weighted structure and low management fee for mass adoption.

Performance of SRI: Addressing a common concern about the performance of socially responsible investing, the article cites a survey of over 1,000 peer-reviewed papers indicating that SRI funds, on average, have been indistinguishable from conventional investing. Moreover, there's evidence suggesting that SRI may offer downside protection in times of social or economic crises.

Accessible SRI Investing with Betterment: The article concludes by emphasizing the evolution of SRI and how Betterment continues to enhance its SRI offering. It emphasizes the accessibility of SRI for all Betterment customers without a separate tier of access, making it easy and affordable for investors to align their values with their investments.

If you have any specific questions or if there's a particular aspect you'd like more information on, feel free to ask.

How Socially Responsible Investing Connects to Your Values (2024)


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