Three Questions on Sustainability with Boris Khentov at Betterment
As SVP of Product Strategy & Sustainable Investing at Betterment, Boris Khentov is responsible for shaping the company’s approach to sustainable investing - no small job at the largest independent online financial advisor. Betterment offers investment, retirement and cash management services, enabling individuals to save for the future with automated advice, tax-smart tooling and goal-setting. The company has offered a socially responsible investment option since 2017, but its approach has evolved over the years. Today, customers can choose between three different impact investment portfolios, each with a curated focus and strategy. We sat down with Boris to learn more about Betterment’s sustainability journey.
How has Betterment’s approach to sustainability evolved as you’ve grown?
Our Socially Responsible Investing portfolios are as much a process as they are a product. We see them as a continuation of a conversation with our customers, who told us in no uncertain terms that climate change and social issues matter to them.
2019 and 2020 were hugely transformative years for us. In 2019, the conversation around climate change really came to the fore, with things like the Green New Deal congressional resolution and Greta Thunberg dominating the headlines. Then, in 2020 after the murder of George Floyd, we saw a tremendous amount of energy and outrage around social justice issues. It became a real moment where we as a company had to ask ourselves: what more can we be doing to address what’s happening in the world? We felt that we had to use whatever levers were available to us to try to make a difference. For us, those levers were our investment portfolios.
We’ve offered a Socially Responsible Investing (SRI) option focused on ESG (Environmental, Social and Governance) since 2017. But even though ESG is often embraced as the gold standard for sustainable investing by professionals, it has a wide remit and is not necessarily tailored to a specific investor’s values. In that moment in 2020, seeing the power and conviction of thousands who were mobilised by climate change and social issues, our sole ESG offering no longer felt like enough. We knew we needed to offer more options, and to attempt to be more precise with it.
We set out to augment our broadly focused SRI offering, which we now call Broad Impact, with additional offerings that could speak to our customers’ stated values more directly. Alongside Broad Impact, we now also offer Climate Impact and Social Impact portfolio options. They’ve been popular, but they’re only a first step in a much longer journey - I like to think of it as a process rather than a product.
In your experience, how can sustainability improve business outcomes?
We knew we were onto something based on the customer response to our SRI options, but it’s important not to get too bogged down in numbers and quarterly results. Making a real difference requires a long-term view.
When we launched our Climate Impact portfolio, we surpassed $100M deposits within six weeks, generating substantial interest not just from new customers, but from existing customers as well, who can be cautious about making changes to their finances. It was confirmation that we were doing right by our customers and their values. We’ve continued to evolve the portfolios since then, for example by adding a shareholder activism component, and we’re continually talking to our customers about what else they would like to see in our offerings.
That was one example where the business outcome was really clear, but it’s not always that way, especially with sustainability. One of the challenges with sustainability is that it can’t always be immediately measured and attributed. As humans, we like things that have a finite mission, delivery dates and end points. It feels satisfying. But sustainability often resists that kind of treatment because it can be a multi-year, multi-decade type of programme. Of course there are milestones you can measure along the way, but you can’t get too caught up in number crunching each quarter or year. It’s really more of a long game.
What’s the number one piece of advice you’d share with other companies thinking through a sustainability strategy?
You can’t always turn sustainability into quantifiable deliverables - and that’s okay.
Don’t set yourself up for disappointment by trying to convert your sustainability strategy into short-term, quantifiable deliverables. It can’t be a box-ticking exercise. Not everything can be measured perfectly. Instead, focus on aligning your broader impact goals with the impact goals of your customers - communicate with them about what they want, so that you can make sure you’re delivering it.
Investing involves risk and performance is not guaranteed. Higher bond allocations in your portfolio decreases the percentage attributable to socially responsible ETFs.