Betterment controlled for some of the challenges commonly faced when executing an SRI investment strategy:
- Data quality. In order to standardize the process of assessing companies’ social responsibility practices, Betterment uses ESG factor scores from MSCI, an industry-leading provider of financial data and ESG analytics that has served the financial industry for more than 40 years. MSCI collects data from multiple sources, company disclosures, and over 1,600 media sources monitored daily. They also employ a robust monitoring and data quality review process.
- Diversification and Focus. Diversification is one of Betterment's fundamental pillars, and it is critical that our SRI portfolios reflect that philosophy at a relatively low cost. In addition, by creating specific SRI strategies that share a common ESG focus, we avoid holding positions that may offset one another because of competing ESG issues and themes.
- Liquidity. As with any of our portfolios, we aim to maximize investors’ take-home returns by lowering the costs of the underlying funds. While SRI-oriented ETFs have relatively low expense ratios compared to SRI mutual funds, our analysis revealed insufficient liquidity in many ETFs currently on the market. The ETFs with SRI mandates that we have selected for inclusion in the Broad Impact portfolio are some of the ETFs with the largest AUM among broadly diversified SRI options. Our investment selection process screens only for ETFs with sufficient liquidity relative to their size in the Betterment SRI portfolio.