Betterment is introducing two new portfolios, Social Impact and Climate Impact, across its Betterment for Advisors, Betterment for Business and retail lines, according to an announcement. The firm’s existing Socially Responsible Investing (SRI) portfolio, launched in 2017, will be renamed as its Broad Impact portfolio. The firm declined to disclose the portfolio value of its SRI strategy.
The Climate Impact portfolio centers around mitigating climate change across global allocations, according to Betterment. It invests in companies with “the lowest carbon footprints within every sector” and “specifically exclude[s] companies holding fossil fuel reserves.” It also earmarks investments for alternative energy, pollution control and climate adaptation.
The Social Impact portfolio adds an additional layer of focus on Betterment’s 2017-founded SRI product, investing in two ETFs: NACP and SHE. Collectively, the additional ETFs are designed to invest in U.S. companies with “stronger racial and ethnic diversity policies, based on criteria developed by the NAACP” and U.S. companies with “greater gender diversity within senior leadership.”
Getting investments to line up with intentions can be difficult—and can come at a cost. The "[Environmental, Social and Corporate Governance, or ESG] Scoring approach to SRI does not fully eliminate companies that investors interested in SRI may consider undesirable," according to a Betterment blogpost on the topic published last year. The document noted that "income returns coming from SRI portfolios have been lower than those of core portfolios recently," in part because of lower dividends compared to the firm's non-SRI portfolios. "Lower dividend yields can be a factor in driving total returns for SRI portfolios to be lower than those of core portfolios," according to the document.
The new portfolios are meant to “evolve” the company’s former SRI portfolio into something more customized, said Boris Khentov, SVP of operations and legal counsel at Betterment.
"Our approach to sustainable investing is as much a process, as it is a product," he said. "We are continuing the conversation, by asking our customers to tell us which values are particularly important to them, allowing us to sharpen our focus on specific pillars of ESG. These are still the early days—we will keep working to further personalize our offerings by listening to our customers, while more and better fund options become available, in tandem.
“Investors shouldn’t have to guess whether their investments are maximizing the impact they value most," he added in a statement.
As it more deeply integrated its SRI option, Betterment changed its onboarding to make those portfolios more accessible. Initially, accessing the SRI portfolio was an additional click away from the core portfolios, said Khentov. By eliminating that click, six times more SRI investing occurred, compared to the baseline workflow.
With the new portfolios, Investors will have the option of moving funds from current SRI investments into the new funds, or to start new investing goals with the new portfolios.