Betterment is what’s called a robo-adviser: It offers consumers a few portfolios of stocks and bonds, then automatically shifts how assets in a portfolio are “weighted” for each customer’s goals, so that a 30-year-old, say, has more stocks in her retirement fund than a 60-year-old. It has about half a million customers and $22 billion under management.
Divestment wasn’t wrong, Khentov thought, but it was inadequate. The fight against climate change requires transforming the physical stuff of the world—its engines, refineries, foundries, everything we call economic infrastructure—in the next 30 years. That would require more than just an oil change, so to speak. It would require changing every company—including Betterment.
The protest led him to create something that, as far as I know, is unique among major 401(k) providers and robo-advisers: a specifically climate-focused portfolio. (This week he published a blog post explaining what went into making it.) Any American can invest in it, including with a retirement account such as a Roth IRA. (Before we get any further, I should specify: Nothing in this column constitutes financial advice.)
Even if you don’t have any retirement savings, the new Betterment climate portfolio is worthy of your attention, I think. Unlike many would-be pro-climate investment products, it represents a sincere attempt to think through what will actually change the economy.
To very quickly catch you up, there are two big trends in investing circa 2021. The first is that investors are choosing broad, low-fee, diversified funds that track the overall market rather than searching for the very few companies that do disproportionately well. The second is the laudable but frankly kind of nebulous idea that people want to invest in line with their values. This is usually called investing for “environmental, social, and governance,” or ESG, funds. Over the past few years, hundreds of billions have poured into ESG funds.
Betterment has promoted and boosted these two trends. Its “core” portfolio tracks major indices, and, in 2017, it launched an ESG-inspired portfolio.
ESG funds are seen as inherently climate-friendly, but they’re really not—or, at least, they usually have a broader ambit than climate alone. Many ESG funds track companies based on how well they perform on a scorecard, which might look at a firm’s carbon footprint alongside questions of “good corporate governance” that climate-focused investors don’t necessarily care about. Some ESG funds invest more in companies if they have a woman on the board of directors—which is a worthwhile idea, except that ExxonMobil’s board has three.
The basic idea of ESG is good, though—and, I would add, goes to the heart of what retirement means in the first place. Perhaps for older readers—and I mean this with no slight—the middle decades of the 21st century remain notional. But I, God willing, would like to celebrate my 59th birthday in 2050, and under current law, I have to start taking money from my 401(k) in 2063.