Betterment stacks impact investing as demand soars

Increased interest in environmental, social and corporate governance investing has pushed robo-adviser Betterment to expand their roster of ESG products as clients continue to ask for investment strategies that align with their values. 

Betterment announced Wednesday it has added two new portfolios, Social Impact and Climate Impact, to its socially responsible investment portfolio offerings in a move to meet that investor demand. In fact, ESG assets are expected to soar to $45 trillion this year, according to research from J.P. Morgan.

Advisers using Betterment for Advisors will be able to offer the new portfolios to their clients, according to the announcement. Customers with a 401(k) account through Betterment for Business will be able to choose any of the new portfolios for their investment strategy, too.

The new Climate Impact portfolio features companies with the lowest carbon footprints within every sector, funds which specifically exclude companies holding fossil fuel reserves and "green bonds" which fund environmentally beneficial projects across the world. Those projects include alternative energy, pollution control and climate adaptation, according Boris Khentov, senior vice president of operations and legal counsel at Betterment. 

“Investors shouldn’t have to guess whether their investments are maximizing the impact they value most, and they shouldn’t have to choose between social good and lower costs,” Khentov said.

The new portfolio adds U.S. companies that value diversity, including both the NACP ETF, designed to provide exposure to organizations with stronger racial and ethnic diversity policies, based on criteria developed by the NAACP, and the SHE ETF, which provides exposure to U.S. companies that demonstrate greater gender diversity within senior leadership.  

“They deserve a values-based portfolio which is both built on a low-cost, diversified investment strategy, and which reflects their personal values,” Khentov said.

The addition of the social impact and climate impact portfolios adds to Betterments existing SRI offerings which were first made available in 2017. ​

IMPACT INVESTING

The robo-adviser is just the latest money manager to address the accelerating investor appetite for a more sustainable approach to investing as social, economic and market volatility continues. For wealth management firms, riding the ESG-investing wave is one of the best ways to engage with a younger audience, according to Envestnet’s Head of Strategic Development Dani Fava.

“Young adults care more about wanting their investments to align with their values,” Fava said during InvestmentNews’ FinTech Virtual Summit Oct. 15.  “There’s a belief you have to be an expert in ESG to offer these to clients, you don't — that's what tech is for.”

Charles Schwab, Merrill Lynch and Fidelity Institutional are just a few firms eyeing new technology partnerships to improve their impact investing capabilities. 

Merrill Lynch, for one, has taken notice of the heighted demand for ESG-investing, according to head of digital wealth management Kabir Sethi. “ESG-investing proves there is tremendous power in being able to capture and uncover the very specific needs of clients,” he said during a panel at the Finovate Fall Digital event. 

“Going into 2021, ESG-investing is even higher on our radar, as far as tech prioritization, than ever before,” he said.  

Other firms, like UBS Group, have already announced plans to offer sustainable investments to wealth management clients worldwide. BlackRock, too, recently announced that it would be integrating ESG into all actively managed portfolios by the end of this year.

According to Celent, ESG-investing global assets are expected to surge to $53 trillion by 2022.