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 socially responsible investing (SRI), I bring a wealth of knowledge and experience to help you understand this increasingly popular category of investments. My expertise is not just theoretical; I've actively followed the evolution of SRI, keeping abreast of the latest trends, funds, and strategies. Let's delve into the key concepts mentioned in the provided article:

  1. Socially Responsible Investing (SRI):

    • SRI is an investment strategy that focuses on selecting companies that aim to create a positive social and environmental impact on the world.
    • Investors in SRI want their investments to align with their values, contributing to positive change in society and the environment.
  2. Alternative Names for SRI:

    • Environmental, Social, and Governance (ESG) Investing: Considers a company's performance in environmental, social, and governance aspects.
    • Sustainable Investing: Focuses on investments that are environmentally sustainable and socially responsible.
    • Values-based Investing: Involves investing in companies that align with the investor's ethical values.
  3. SRI Portfolios at Betterment:

    • Betterment has created three impact-focused SRI portfolios:
      • Broad Impact: Diversified exposure considering environmental, social, and governance pillars.
      • Climate Impact: Focuses on climate-conscious alternatives, divesting from fossil fuel reserves.
      • Social Impact: Includes funds promoting gender diversity and minority empowerment in addition to the broad impact.
  4. $VOTE Fund:

    • The $VOTE ETF is part of Betterment's SRI portfolios and utilizes a unique approach to shareholder activism.
    • It employs "proxy voting," allowing investors to influence companies' decision-making through their shares.
    • Engine No. 1 launched $VOTE in 2021, aiming to use index funds for shareholder activism, successfully influencing ExxonMobile's board composition.
  5. SRI Performance:

    • Contrary to the misconception that socially responsible investing might limit growth, research indicates that SRI funds' performance is, on average, indistinguishable from conventional investing.
    • A survey of over 1,000 peer-reviewed papers suggests that SRI may even offer downside protection during social or economic crises.
  6. Evolution of Betterment's SRI Offering:

    • Betterment's SRI portfolios have evolved since their introduction in 2017, with a continuous search for new funds and updated standards to increase impact and performance.
    • The introduction of the groundbreaking $VOTE fund is an example of Betterment's commitment to innovation in SRI.
  7. Accessibility of SRI:

    • Betterment aims to simplify socially responsible investing, making it accessible to all investors without a separate tier of access.
    • Investors can express their values through investing, and Betterment's SRI portfolios offer a simplified management fee structure.

In conclusion, socially responsible investing has come a long way, and with the innovative approaches and portfolios offered by Betterment, it's now easier than ever for investors to align their portfolios with their values while still achieving diversification and long-term growth.

How Socially Responsible Investing Connects to Your Values (2024)
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