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


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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As an enthusiast and expert in the field of socially responsible investing (SRI), I've been closely following the evolution of this increasingly popular category of investments. The article you provided, published by Betterment Editors on August 26, 2022, delves into the world of SRI, highlighting its growing popularity and Betterment's approach to it. Let's break down the key concepts discussed in the article.

Socially Responsible Investing (SRI):

Socially responsible investing, often abbreviated as SRI, is an investment approach that has gained traction among individuals who seek to align their investment choices with positive social and environmental impacts. This strategy allows everyday investors to influence markets and support companies striving to make a difference.

Names and Variations:

SRI goes by various names, including:

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

Regardless of the terminology used, the core idea behind SRI remains consistent – evaluating a company's financial returns alongside its impact on the world.

Betterment's SRI Portfolios:

Betterment has introduced three impact-focused SRI portfolios:

  1. Broad Impact:

    • Designed for those interested in overall change.
    • Increases exposure to investments considering environmental, social, and governance pillars.
    • Utilizes a foundation of the Core portfolio and swaps in SRI alternatives in various asset classes.
  2. Climate Impact:

    • Aimed at eco-conscious investors.
    • Incorporates climate-conscious alternatives and divests from owners of fossil fuel reserves.
    • Includes a global green bond fund to fund green projects and reduce carbon emissions.
  3. Social Impact:

    • Tailored for equality-minded investors.
    • Builds upon the Broad Impact portfolio, adding two funds focused on gender diversity ($SHE) and minority empowerment ($NACP).

Portfolio Methodology:

Betterment simplifies SRI investing by analyzing available ETFs and selecting funds with the desired SRI mandates. These funds are chosen to maintain Betterment's signature diversification and cost considerations.

Evolution of Betterment's SRI Offering:

Betterment's SRI offering has evolved since its introduction in 2017. The team actively seeks new funds and updated standards to increase impact and enhance performance. The article highlights $VOTE, a groundbreaking fund included in all SRI portfolios, which utilizes proxy voting for shareholder activism.

$VOTE Fund and Shareholder Activism:

  • $VOTE ETF employs proxy voting to influence companies toward environmentally and socially responsible practices.
  • Engine No. 1 launched $VOTE in 2021, aiming to harness indexes for shareholder activism.
  • $VOTE made headlines by persuading a majority of ExxonMobile shareholders to install new board members focused on reducing the company's carbon footprint.

Performance of SRI:

The article addresses a common concern about the performance of socially responsible investments. According to a survey of over 1,000 peer-reviewed papers, the performance of SRI funds has, on average, been indistinguishable from conventional investing. There's also evidence suggesting that SRI may offer downside protection in times of social or economic crises.

Accessibility and Affordability:

The article emphasizes that socially responsible investing has become more accessible and affordable, dispelling the notion that it's only for a select few. Betterment ensures that there's no separate tier of access for its SRI portfolios, offering all customers the opportunity to invest in a socially responsible manner at the same simplified management fee.

In conclusion, the article provides a comprehensive overview of socially responsible investing, Betterment's approach to it, and the positive trends in making SRI more accessible to a broader audience.

How Socially Responsible Investing Connects to Your Values (2024)
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