March 1, 2021

#102: Put Your Money Where Your Future Is

#102: Put Your Money Where Your Future Is

In Episode 102, Quinn & Brian discuss: How to invest in defeating climate change.

Our guest is: Boris Khentov, SVP of Operations & Legal Counsel at Betterment. If you’ve been reading or listening to our newsletter, you’ve already heard of Betterment, a financial advisory company and investment platform that recently introduced their Climate Impact portfolio — and if you haven’t heard of Betterment yet, start listening to the bonus audio newsletter episodes we release every Friday!

This is a really thoughtful conversation on what it means to participate in the climate fight in every area of your life, where investments are trending and where “greenwashing” is becoming an issue, and how you can position yourself for both relative safety and financial success.

Plus, Boris shares a story about protesting with a past guest and personal hero of ours — Dr. Ayana Elizabeth Johnson — and that’s pretty cool too.

Have feedback or questions? Tweet us, or send a message to funtalk@importantnotimportant.com

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Important, Not Important is produced by Crate Media

Transcript

Quinn Emmett:

Welcome to Important, Not Important. My name is Quinn Emmett.

Brian Colbert Kennedy:

And my name is Brian Colbert Kennedy.

Quinn Emmett:

That's right. Folks, we're back. We're back. This is the science podcast for people who give a shit.

Brian Colbert Kennedy:

Right.

Quinn Emmett:

Our guests are scientists, doctors, nurses, CEOs, journalists, engineers, farmers.

Brian Colbert Kennedy:

Keep it going.

Quinn Emmett:

Investors, activists, educators, policymakers, even a reverend.

Brian Colbert Kennedy:

Wow.

Quinn Emmett:

Yeah.

Brian Colbert Kennedy:

And a quick reminder, you can send us questions and thoughts and feedback to us right on Twitter @importantnotimp, or you can email at questions@importantnotimportant.com.

Quinn Emmett:

That's right.

Brian Colbert Kennedy:

You can also join tens of thousands of other smart people and subscribe to our free weekly newsletter at importantnotimportant.com

Quinn Emmett:

That's right. Brian, this week, we are talking about how to invest in defeating climate change.

Brian Colbert Kennedy:

Wow.

Quinn Emmett:

Mm-hmm (affirmative). Tell them who our guest is today, Brian.

Brian Colbert Kennedy:

Well sure. Our guest is Boris Khentov from Betterment, and I have to say this was an incredibly thoughtful conversation about what it means to participate in something like the climate fight, where investments are going, and how you can position yourself for both relative safety and success.

Quinn Emmett:

That's right. No promises, but lots going on and things are hopefully going to transform for the better with a lot of work, a lot of participation. It's going to require the kitchen sink, and part of that is sustainable investing.

Brian Colbert Kennedy:

That's right.

Quinn Emmett:

We're so lucky to have Boris on to talk us through that. Brian, let's go do this thing. See if we remember how to do it.

Brian Colbert Kennedy:

Here we go.

Quinn Emmett:

Okay. Our guest today is Boris Khentov. Together, we're going to find out how you can invest in the future and help fight the climate crisis along the way. Boris, welcome.

Boris Khentov:

Hi, pleasure to be here.

Quinn Emmett:

Absolutely.

Brian Colbert Kennedy:

We are pumped to have you. Thank you, thank you very much. I guess a good way to get going is just do a quick intro, Boris. Just tell us really quickly who you are and what you do?

Boris Khentov:

Sure. So I'm the senior vice president of operations at a company called Betterment, which is an online financial advisor, money manager. We've been around for about 11 years. We launched in 2010, and we help our customers save for retirement and for whatever financial goals that they may have for house down payments, kid's college, vacations, things like that. We, at this point, have about 600,000 customers, and we manage around 27 billion for them on their behalf, including your general investing accounts, IRAs, 401Ks, things of that nature.

Brian Colbert Kennedy:

Nice. So you guys are small fries is what you're saying.

Quinn Emmett:

Awesome.

Boris Khentov:

Well, it's funny. We still, in many ways, feel like we're a small fry, because we started out kind of built this company from nothing. I've been with Betterment for eight years. When I started, it was maybe about 15 people. We had something like, I don't know, 10,000 customers or something, 50 million or whatever. So the exponential growth definitely year over year, you on the one hand definitely become attuned to the fact that things are changing and the scale is totally different, but the culture is still... It's a 300-person company. When you're dealing with the Fidelities and Vanguards and Schwabs as your primary competitors, we still are tiny in many ways, right?

Quinn Emmett:

Sure, sure. It says a lot, and we'll get to this about just this decade that you guys have been alive and what the rise of passive index funds and things like that have meant towards exponential growth. It's wild. Awesome, man.

Brian Colbert Kennedy:

I've heard of this saving money that you speak of, but I haven't really been able to put it into practice. Maybe we can talk after that.

Quinn Emmett:

Yeah, that might be a separate conversation.

Boris Khentov:

You know they say saving is 90% of investing. Basically just making sure that you're actually putting away sufficient money for your retirement is nine tenths of the battle, and then what happens next is the piece we try to optimize for.

Brian Colbert Kennedy:

Awesome. All right. We will get into it all. A quick reminder for everyone, what we do here is provide some quick context for our question or our topic today. Then we'll get into action-oriented questions that everyone can ask and help do to fix what's going on out there.

Quinn Emmett:

Awesome. Boris, we start with one important question to set the tone for this thing. Instead of saying, "Tell us your entire life story," we like to ask, Boris, why are you vital to the survival of the species?

Boris Khentov:

Oh my god.

Quinn Emmett:

I encourage you to be bold and honest.

Boris Khentov:

Is this like an overt narcissist test? I feel like the high functioning ones are not going to fall for this one.

Quinn Emmett:

It can be if you want it to be. Yeah, man, look, you're on the show not just because of Betterment, which is awesome in itself, but because of the moves you guys have made lately. You're the author behind a lot of those. Tell us why you feel like you're the one to do it.

Boris Khentov:

Yeah. No, it's funny, the second thing I thought was, well, I'm Russian, and I took in [inaudible 00:05:29] with my mother's milk. So just the idea that I am essential, it cuts against a pretty deep... I'm like my existence has no meaning. I am dust. How am I supposed to answer? But I think, I don't know, maybe reframing this a little bit as what type of thing am I drawn towards, which I think has value to the world? I'm certainly not the only one, and I think plenty of people sort of have this approach. The more, the better, in my opinion. I'm really, really drawn to complexity. I just find complexity irresistible. I look for it wherever I can, and then I'm kind of just like a pig in shit. I just figure out what are all the moving pieces? What's going on here? Just where's the signal in the noise?

Boris Khentov:

Then once I'm in there and once I've kind of had a chance to sort through, or it's really an ongoing basis just trying to understand a complex system, I compulsively can't resist to then start simplifying that complexity, not to reduce it and sort of shed important texture and granularity, but to tell a story. I think first and foremost to myself, right? It's pattern matching. It's trying to understand where to focus. Then inevitably to anyone else who will listen, I think that's a really important one-two-punch of compulsive behavior, which is in order to affect any kind of change really to drive something that is a long-term process that is not going to provide you with a long-term process that is not going to provide you with a ton of instant, quick feedback loops or successes, far from matured where you have to motivate potentially millions of people to effect change across all kinds of vectors.

Boris Khentov:

You want people who appreciate the complexity and you want people who can summarize that in a message that is simple, that people can actually act on, because most people are dealing with other problems, and they need to be able to trust those who are specialists to sort through the complexity and to distill a simple message that is an action item, right?

Quinn Emmett:

Sure.

Boris Khentov:

Or sometimes an inaction item, if the desire to act is irresistible. That's something that I've just noticed throughout my career. I just tend to do it impulsively without anyone asking, and I think when ti comes to things like sustainable investing, it's proved to be a particularly useful frame, because it is beyond complex. But what we really need is simplicity to get people off the sidelines and actually motivate people to start participating in this.

Quinn Emmett:

Yeah, and you can even go further out. I'm excited to get into it, because it seems like you share a lot of my feelings on this, which is to attack a problem that's as systemic and complicated as something like the climate crisis. Like you said, sustainable investing in itself is inherently very complex and intricate, and that's just one piece of the puzzle of the way we have to take this thing on, but we also have to really dial it down eventually to a point where people can do something about it and take part in it, because not everyone is as, like you said, dialed in to the complexity itself. They don't have time for it.

Boris Khentov:

All investing is generally, and get there's so much to the complexity that traditionally the financial services industry wants you to focus on, because it happens to align with their business model and their bottom line. If you're acting as an advisor in the best interest of a client, there are actually very few things you need the client to focus on. So some of the apps you'll see in the news these days and kind of this day trading, I want to say epidemic amid a pandemic where you're basically seeing this gamification, right? These little hand-held slot machines where people are just being induced to make transactions, to trade. So to further those kinds of goals, you're trying to surface complexity potentially where you're saying, "Oh, look at these prices moving day-to-day. Look at all these different kinds of options you can buy." Whereas if you're trying to advise someone to save for the long-term or to effect change that is long-term change, you really have to keep your eyes on the prize, and you have to strip out a lot of the complexity that is just confusing and ultimately noise.

Quinn Emmett:

Well, and it becomes inoperable for a lot of folks.

Boris Khentov:

Yeah, it's overload. Yeah.

Quinn Emmett:

But some of us like the overload. Awesome, man, well listen, I'm going to just do a minute of quick context here for everybody as we dive into this. We've done some financial-oriented stuff before, but I want to talk about that not, because especially now with a new, at least for the moment, a new administration and a new Senate, there's an opportunity for some pretty transformative things to happen.

Quinn Emmett:

So Boris, there's obviously two things that are not so under the water anymore. The first is that the climate crisis is here, as people have said forever, like, "How do we stave it off?" It's very much here. There's millions of folks from farmers in India to black youth in America with asthma and urban heat, they're already suffering from heat and pollution-related illnesses and deaths, and we've got all these violent natural disasters and more of them and hurricanes and wildfires and all that. That is table stakes now.

Quinn Emmett:

The second is that because of those things, investing, whether it's for ourselves or our families, our businesses or on a federal and global level for our infrastructure, it's more intricately tied to the decisions we make as a people and as a species than ever before. There's so many more practical effects, both that we can control and that we can't anymore that are coming down the pipe. We know more about the planet we live on than ever before, and hopefully just in time, because our runway for anticipating and dealing with volatile change one way or the other is very short. There are these current facts on the ground, and what we can extrapolate from them, and then there's just a lot of guessing. It's not unlike, speaking of our friend Franklin, it's not unlike being a screenwriter. Your career is completely unpredictable.

Quinn Emmett:

I've spent a fair amount of time thinking and reading and writing about this, but it's pretty clear that we increasingly can't rely on the past to guide our present and our future decision making that much anymore. We don't quite understand the depth and I guess the breadth of the climate feedback loops that are already baked in, but we do have to start preparing better and more for the unexpected. Again, that's on every level, from personal to societal.

Quinn Emmett:

Yet at the same time, we're in such the infancy. I know you spent some real time talking about this in your post, but infancy of these ESG-type funds that are doing well, but there isn't even a global standard that's been agreed to even informally for incorporating climate risk into these models, right? So we're at this crossroads, and there's this huge, incredible potential transformation in front of us with maybe some of the biggest markets ever, but there's a lot of reform that needs to go on.

Quinn Emmett:

We had a whole conversation with Rebecca Henderson at HKS about needing to rebuild capitalism for a world on fire, as she put it in her book, from the inside out. That also means helping more people participate in-

Boris Khentov:

Great [inaudible 00:13:22] by the way.

Quinn Emmett:

Oh, thank you, man.

Boris Khentov:

I listened recently. Mm-hmm (affirmative).

Quinn Emmett:

She's out of control. Just so smart. So pretty thankful to be able-

Boris Khentov:

Pretty funny. She's pretty hilarious.

Quinn Emmett:

Yeah. No, it's great. Her command over this and her passion for it really, really, really matters, and hopefully will move the needle, and I think it is with a lot of folks. But we can't just do all these things. We have to make it, and this is part where Rebecca and I talked about, you can't just hire diverse people from your company and say you're doing better. You have to help these people. You have to listen to them and listen to their values, but also help them participate in and profit from these markets and what could be a much cleaner and more equitable world. So that's what I want to focus on today is investing for yourself and your company and your industry in the future, and also fighting this crisis at the same time.

Quinn Emmett:

So Boris, you talked about Betterment started back 2008, launched in 2010. Crazy time to start an investment platform. Your founder said, "We started Betterment in 2010 in the wake of the financial crisis to be a place to help people do what's right with their money so they can live better." So much has changed, right? Index funds are all the rage. We've got the FANG stocks and companies that are such a part of everyday life. Intel missed the boat on mobile. The power sector got crushed. Tesla was building Model 3s in a tent a couple years ago. You've got the top two equity funds in 2020 by returns are focused on clean energy. A lot of people are prospering, and yet millions haven't been able to participate at all, much less even keep their water on.

Quinn Emmett:

So I'm curious, despite all the volatility now and what's coming down the pipe, why do you feel like betterment is better prepared for decade number two of your existence? I guess is that still the goal for people to live better, and what does that mean?

Boris Khentov:

Timing is so interesting, right? Because Jon Stein, our founder, he was working in the financial service industry. He was a consultant to major banks, and he worked for three or four years leading up to the financial crisis. What he saw was banks that were fundamentally just not aligned with customer interests, right? This is the story here of him willing this new type of investing into existence was really born out of a very, very close observation of just the way that the business as usual dynamics in the financial service industry just didn't even make a pretense as to what the customer actually wanted. We're talking about banks that are just trying to optimize for more overdraft fees, and he'd be at meetings where corporate boards listening to their consultants wouldn't even bring up the customer's interests even nominally, right? As a throwaway.

Boris Khentov:

They literally were just trying to drive revenues that were clearly zero sum taking money out of people's pockets, trying to hide fees, trying to jack up the fees that are sort of in deep disclosure, all sorts of backdoor revenue streams creating the kind of web of services that isn't any surprise that none of this is really built around the customer and what's good for the customer's financial well being. No. It's not because these are bad people, it's because the system is set up to encourage and incentivize the kind of thinking that just drives along those vectors.

Boris Khentov:

So Betterment was really founded to kind of... He saw an opportunity to actually speak to customers and build trust by effectively restructuring the business model such that we don't make money in ways that people don't understand. So we don't have an incentive to stuff various fees into things, because we only have one simple fee. We just take it, small percentage. It's a quarter of a percent that we take on a person's portfolio, whether they're invested $1,000 with us or a million dollars. It's very transparent. So when someone's money, someone's wealth effectively, if their nest egg grows, we make more money, so that's the kind of alignment that you want, right?

Quinn Emmett:

Sure.

Boris Khentov:

If we're just taking a small percentage, more money means more revenue for Betterment and a better financial outcome for the customer. It's that simple, right? That kind of led to a bit of an online revolution. Betterment created a category, which we call it digital financial advice, because it is the very low fee that traditionally in the industry maybe was 1%, 1.5%. We were able to get it down to a quarter because we used technology, because it was fundamentally kind of an online app, because all the various complexities that the financial service industry was trying to sell you weren't really good for you. They just made more money for the financial services players.

Boris Khentov:

So once you strip out those incentives, it turns out investing advice is really not that complicated for 99% of the general public, which is buy index funds, diversify broadly, keep fees low, keep driving fees as low as possible, and don't react to volatility. Don't react to trends, because our brains, the cognitive biases that we have built in from eons of operating in an environment that resembles nothing like the world we live in today, they're just going to cause us to make the wrong decisions almost every time. Certainly over time, you are just going to trend down to hurting yourself. So people are thinking that they're trading wizzes, because they made a couple of great decisions in a bull market, but inevitably you wind up buying high, selling low, rinse, repeat.

Boris Khentov:

The more you do and the more you fiddle, the worse off you are likely to be. The amount of research that's out there on this is just staggering, right? It taps into ever little lizard brain part of our brain stem, right? The fear when you see things falling. Oh, like loss aversion. Just confirmation bias, all kinds of things where we start to believe that we're geniuses because we got lucky after eight coin flips or whatever. Then we believe that, we're in mortal fear because we see a little bit of red on our screen.

Boris Khentov:

So many things we're able to pioneer because we were unshackled from those revenue incentives, because we didn't make more money if people traded more. We removed the colors. Usually you'd go to a brokerage account and you'd see green and red, and you'd see all kinds of moving. These things are down, these things are up, and intraday. We were able to kind of... If you want to know how things are performing, you can keep clicking and going deeper and deeper into your account, and you'll see that, but we're never going to use red, because that's a behavioral tactic. That's a cognitive hack to drive your fight or flight.

Boris Khentov:

So the fact that we happened to have launched right on the tail of the financial crisis, which actually kicked off this really long sustained bull market, that was good timing. I think Jon had an amazing idea and built an amazing team, but all these things are necessary, but not sufficient. You also need a little luck always. Any business that manages to find success at scale got lucky in many, many ways. Some ideas come too early. Some ideas suffer from-

Quinn Emmett:

Sure, yeah.

Boris Khentov:

Etc, right? But I think as we have... With a decade plus under our belt and seeing the various trends come and go like, "Oh, this year, it's energy is down." Well, some previous year or whatever something was up. The US markets are up, international markets are down. Through all of this, the right strategy, and as fiduciaries, as financial advisors that we advise for our clients and we build our technology, and all the UX kind of encourage good financial decisions is to stay the course, stick with the plan, and don't fiddle just because of what you see in the news.

Boris Khentov:

So it's really fun to definitely talk about how Tesla has done and some particular green energy fund is off to the races, but when it comes to a broad investing solution for retirement, all this stuff, for better or for worse, is noise, and it can distract people from those goals. But when it comes to something beyond purely returns, when it comes to feeling like you are also leveraging your savings, however great or small towards something that is a greater cause, things get more interesting, because it's no longer sufficient to just diversify across every single stock across the globe, every single bond, hold the entire global portfolio, which is effectively what modern portfolio theory, what a Nobel Prize suggests is the best risk-adjusted return to long-term investing.

Boris Khentov:

This whole ESG, socially responsible, sustainable, impact, there's all these words. Nobody really quite knows what any of... Well, most people don't know. They do all have technical definitions, but the jargon is part of the problem, right?

Quinn Emmett:

Yeah.

Boris Khentov:

It's an entirely new landscape, and there are so many lagging indicators around what people think the trade-offs that are involved and what people are even seeking. Some people think they're trying to integrate their values and feel like they're a part of the solution, not another problem. Other people actually think they're chasing alpha, so outside returns. They think, "Well, by placing a bet on companies that are more carbon ready, transition prepared, I'm actually going to beat the market."

Boris Khentov:

If you ask the average investor who's interested in sustainable investing, well, which is it? Do you want to feel like you're not part of the problem? Do you want to proclaim to the world you're part of the solution? Do you think you're going to make more money this way? Depending on how you ask the questions, the answer may be yes to all of them, right?

Quinn Emmett:

Right.

Boris Khentov:

So there's need for clarity to tease these things out. But I think the biggest challenge is that a lot of this terminology initially, it originated from the institutional world. So the way I joke about this is kind of like when you read a paper about sustainable investing, you can imagine a bunch of Belgian technocrats talking to a Norwegian sovereign wealth fund manager or something. It's all rather technical and rather precise and very academic. Betterment has a team of people that are domain experts, and they can parse through all these things.

Quinn Emmett:

Sure.

Boris Khentov:

But for the general public, these acronyms and these terms, they just keep a lot of people on the sidelines, because they're not really designed to appeal-

Quinn Emmett:

It's so confusing.

Boris Khentov:

Yeah. What is ESG? Do most people know what that even stands for?

Quinn Emmett:

Yeah, and it's like before you even get to ESG, we have to talk about the fact that we've got scientists and CEOs of BlackRock, and like you said, Norwegian fund managers who we can't even define what net zero means versus 40 other terms that sort of mean the same thing, but don't. Like you said, that's leaving a lot of people out in the cold, because here's people that are honestly trying to understand it that are having a pretty tough time with it, and that's before we get into actual regulations and things like that.

Boris Khentov:

Yeah. Yeah. Betterment launched our first offering that attempted to speak to our customer's values and integrate those values into their investments. In 2017, we launched a socially responsible investing portfolio, and it was clear from talking to our customers that this was important to them. We definitely saw some interest, but there was this kind of sense in the investing industry that you know what? Values-driven investing, it's just one of those things that people say they want, but when push comes to shove, they don't really want it.

Quinn Emmett:

Sure.

Boris Khentov:

Sure enough, our initial uptake was modest, right? We certainly heard a lot of interest that wasn't necessarily translated into real adoption, but it did start... It grew steadily and we continued to iterate on the offering and make it more and more values-aligned, but a lot of other stuff was happening in the world and for Betterment, and it was there, and it was growing, but it wasn't the main story. It wasn't grabbing a lot of attention internally, as far as something we needed to focus on even more.

Quinn Emmett:

Sure, but also, you could only do as much as society and the world would let you, which is like you said, what does ESG even mean, much less in 2017?

Brian Colbert Kennedy:

What does ESG mean?

Boris Khentov:

Good question. So ESG stands for environmental, social, and governance. Don't ask why that... What is that, a sentence or a phrase? It doesn't quite... But it is a rather bloodless but very precise description of these three pillars along which a company can be evaluated on its environmental impact, on social impact, and its governance. So here we're talking about, I don't know, is the CEO best friends with, I don't know, with the board chair, or are there two shares, two classes of stock where the founders or management gets an outsized amount of votes compared to the general public that's holding common stock?

Boris Khentov:

Governance is basically like best practices for how to avoid conflict and make sure that everyone's accountable. In many ways, a good friend of mine, Tanya Svidler, who's head of ESG at a company called Morningstar, she told me the way it really should be described is it's governance of environmental and social issues, but the fact that it's kind of arranged as these three separate components, it's kind of confusing. But most importantly, it doesn't really speak to a lay person who is an expert in something else. We all have our expertise. We all have jobs or activities where we know something better than others, but this particular thing, it only speaks to the technocrats, right? It speaks to the domain experts in investing.

Boris Khentov:

So I think one of the things that we at Betterment didn't quite see very clearly is that by launching this offering, and we used the acronym SRI, socially responsible investing, which has its roots kind of in the older divestment movement. So socially responsible investing was associated with the South African, the campaign to divest from South Africa right back in the '80s to battle apartheid. It also it goes even deeper, and it talks about some of the religious values-driven investment mandates. So we're talking kind of the vice, ex-vice strategies where maybe if you are halal, right? You don't invest in interest-bearing instruments, right? Because Islam has prohibitions against that. Maybe the Mormon community, the Christian community at large will try to shun alcohol stocks, tobacco stocks, gambling stocks, things like that.

Boris Khentov:

So these are kind of very strong lineage, going back to the 20th century and even earlier, in terms of retail investing. But then headed into the 21st century, we're really dealing with a mishmash of concepts that are increasingly centered around the really social justice climate and, well, climate justice as the kind of culmination of all of these sets of values.

Boris Khentov:

One of the mistakes that we made I think at Betterment is assuming that if we put this thing out there, and hey, it does all these things, ESG, the E stands for environment, the S stands for social, and if people aren't responding to that with that crazy fervor that industry analysts [inaudible 00:30:55] breathless pieces like, "Oh, this year is the year of ESG. Millennials love ESG," blah blah blah. Well, it must be the customer's fault, right? That they're not picking up.

Boris Khentov:

But really, I think what we've been missing is we, because this is an emotional issue inevitably, you are tapping into someone's deepest-held beliefs. It is our responsibility, I think it's the industry's responsibility to meet customers halfway and actually speak in a language that resonates and move away from this technical jargon. I think that is really what, for me, in 2019, was... It dawned upon me as a hypothesis, and then it really grew into a revelation. That's what led to how we approach the problem in 2020.

Quinn Emmett:

Yeah, for sure. So talk to us about that moment. You went to a protest with one of our very first guests and one of my heroes, Dr. Johnson. Tell us about that.

Boris Khentov:

Yeah. So in 2019, it was pretty hard to ignore what was going on, in terms of just public awareness of climate change. Obviously the people who were involved in this for decades might kind of raise an eyebrow to that, but I think for the general public, it really was kind of a watershed year, right? I remember in the summer, just the entire Amazon was burning, and it was actually in the news. People were paying attention. You had Greta was sailing across the ocean speaking to the UN. There were things happening on a different scale, in terms of public awareness.

Boris Khentov:

Yeah, that winter, a good friend of mine, Dr. Ayana Elizabeth Johnson, who is a marine biologist, and she hates when anyone suggests that she is a climate change scientist, but she's certainly a climate change expert, because while her PhD is in marine biology, I know she likes to say the ocean is a pretty big part of the climate. Sure. I'll take her word for it. Seems plausible, right?

Quinn Emmett:

Yeah, we'll go with it.

Boris Khentov:

She invited me to a protest in DC, something called Fire Drill Fridays, which was a partnership between Jane Fonda and Green Peace and a bunch of other folks to effectively just march on the capital every Friday, every week, and draw attention to climate change and call for action. One of these, I think the very last one in the series, was focused on the role of financial services institutions in climate change.

Boris Khentov:

So Ayana invited me, and I thought to myself, "Well, this is just a little too on the nose," and I think I need to make time to actually hop on the train. I'm based in New York, and head down to DC for this.

Quinn Emmett:

Right, sure.

Boris Khentov:

It's funny, because I've never considered myself an activist. I still don't. I think the reasons for that, I've tried to interrogate myself on this. What is it about that word and that concept? Why have I never tried that on for size and still refused to in many ways? I think having grown up in the Soviet Union, honestly, it had something to do with it.

Quinn Emmett:

Sure, I would imagine.

Boris Khentov:

My parents were always on the "right side" of history, right? They definitely traveled in circles which included dissonance. They themselves were not active, but it was understood that the system was bad and wrong and it needed to change. But the idea that individuals would somehow alone or together effect any kind of change, that's not what history suggests in Russia, right? That's not... In fact, my parents, and just the entire Soviet generation, it was beaten into them that you have to keep your head down and that you don't draw attention to yourself. Only bad things can come of those who draw attention to themselves, and history proved that over and over, and to the extent that activists did something in the Soviet Union, they were martyrs.

Boris Khentov:

So activism wasn't a thing that people thought, "Oh hey, that's a great way to spend your time, because you're going to feel good about yourself, and you're going to change the world." It's like, "No, you're going to be a martyr, and it's noble, but you're not really going to accomplish much." I think I didn't realize to what extent that really sunk into my psyche. I moved here as a kid and I grew up without the fear. I wasn't afraid of speaking up, but I think deep down inside, there was this understanding that, well, you can't really change anything though.

Boris Khentov:

The Soviet Union eventually collapsed. There's no clear attribution as there is in the Civil Rights Movement or even someone like Ralph Nader who really single handedly did amazing things in the '60s and '70s and '80s for consumers around safety, real amazing accomplishments for the public good. Those stories didn't really exist where I came from. I think implicitly, I never thought of myself as someone who should be trying to change anything, because that's just not how the world works.

Brian Colbert Kennedy:

I grew up here, and I don't think I can change much.

Boris Khentov:

Well, right, because you can't, right? But you can potentially change something, particularly in consort with other people. Even that is a concept that I think Americans thankfully are lucky enough to take for granted that that's a thing you can imagine.

Brian Colbert Kennedy:

I want to talk about the, yeah, your guys' climate impact portfolio, because I know index funds are supposed to be simple, and that's why they're appealing, but I would imagine that building a portfolio of funds strictly optimized for divestment or capitalizing on electrification and new energy giants isn't so easy, yet anyway. That's what your portfolio seems to try to do though, right?

Boris Khentov:

Mm-hmm (affirmative). That's right. Yeah. So I think before I went on a tangent-

Brian Colbert Kennedy:

We love tangents.

Quinn Emmett:

No, I will literally go down those rabbit holes all day.

Brian Colbert Kennedy:

Hell yeah. Hell yeah.

Boris Khentov:

The idea behind this portfolio was born that weekend when Ayana took me to this protest. I remember hearing all around me, it was just, "Divestment, divestment, divestment. We must divest." I thought, "Okay, well I'm here as an observer. I'm learning about this, and I appreciate the simplicity of this message. I love distilling something into a simple message," but I'm like, "I know too much," right? So I'm just like, "Oh god, it's not that simple. You can't just divest from stuff that really doesn't do the thing you want it to do."

Boris Khentov:

For the most part, I kept this to myself, but Ayana and I talked all weekend. She's just so, so thoughtful and intelligent and curious about all of the fields adjacent and not adjacent to hers. She really pushed me to think a little bit about, okay, well if it's not that simple, what then? Are people supposed to just not do anything with their investments, because "divestment" is just not enough? I really took that as a challenge.

Boris Khentov:

I took that back to New York and back to Betterment, and I started churning on it. I'm like, "All right, well there's a lot of complexity here, and I'm happy to go into why divestment in particular is on its own... Doesn't quite do the thing that people want to think it should do, people want to accomplish, but most importantly, I thought complexity aside, what was simple to me was that there was an energy and an emotion and a momentum out on the streets, right? These thousands of people were mobilized. Why are we not tapping into this energy? If everybody acres this much, why is the sole socially responsible offering flying under the radar? We're missing something, right?

Boris Khentov:

The most obvious thing I could... If I could summarize it, I was like, "Where is the word climate?" It's that simple. Why is the word climate not in any of our copy, in any of our literature? Why are we selling this as this broad jack of all trades, socially responsible portfolio? Yes, the E stands for environment, the ESG themes that permeate the methodology, it's all in there, but where's the word climate, right? So just coming from that, it's like what would a climate-aware portfolio look like?

Boris Khentov:

That's when we kicked off dozens and dozens of people working for six months trying to understand? So if we were to focus a portfolio specifically on addressing mitigating climate change, what would that look like, separate from a broad, values-based ESG portfolio that tries to do everything, right?

Brian Colbert Kennedy:

Sure.

Boris Khentov:

Because you could imagine, right? There's a company out there, so definitely addressing systemic discrimination, inequity with respect to marginalized groups, whether it be sexism, racism. Those are all things that investments can also address. We do have a social impact portfolio that focuses on that. But Exxon has three women on its board, right?

Quinn Emmett:

Sure.

Boris Khentov:

If you're screening for certain kinds of attributes, there ultimately are going to be trade-offs between which of these pillars, the environmental, the social, the governance, which do you care about most. I could tell that for some people, well, a lot of people, I would wager, I think the climate crisis is a single issue type of thing where it's like this is the thing I care about most, and I will respond to this.

Boris Khentov:

So we set upon this research and development journey where we thought, "So what would a climate-specific portfolio look like?" We found a lot of really interesting things, and we kind of dug into this space, and what we realized is the more we learn, the less certainty there is, as far as what the right approaches are, because now you have to interrogate not only what customers want and what they respond to, but what is actually going to meaningfully and in good faith actually drive the kind of change that these customers are telling us they want to accomplish.

Quinn Emmett:

And still dealing with... It's interesting, and still operating from a table stakes where, like we said, the vernacular and the lack of rigor and transparency around measurement and these risks, again, from ESG to TCFD, you're operating on a level where those still aren't established, but you're still trying to build something that does the right thing.

Boris Khentov:

Yeah, absolutely. The simplicity of divestment is it's just you're faced with this absolutely terrifying intractable problem. People fel powerless to stop it, right? Divestment is satisfying and simple. It's like, "Well, I'm just going to knock these things out or not buy them in the first place," right?

Quinn Emmett:

Right.

Boris Khentov:

Unfortunately, the way that capital allocation works, and this is the real insight here, right? Is that if you're a retail investor, if you're saving for retirement and your 401K, putting away whatever you can, you are a part of the capital allocation system, right? Your money is being invested in equities, in fixed income, and it is being channeled as part of the general capital allocation flows of the world, right? So you are participating in that system, and in order to ensure financial security for yourself, you should be, because that is how we do this in this system that we live in, right? For better or for worse.

Boris Khentov:

While you're participating in that allocation of capital, you might as well apply your preferences as to how that capital should be allocated. The challenge with divestment is it tends to be very easy to... The term green washing is thrown around a lot, right?

Quinn Emmett:

Sure.

Boris Khentov:

I think it means... I don't know. What does it mean to you guys? What do you think of when you hear that term?

Quinn Emmett:

I'm sure I've got my super biased, judgemental answer about it. Brian, do you want to talk about what it means to you?

Brian Colbert Kennedy:

I was hoping that you would, and then I would go, "Same."

Quinn Emmett:

Great. Green washing, again, this is one of those rabbit holes I can keep going down. We can talk about green washing for the sake of companies saying they're net zero but not talking about how they're going to deal with scope three emissions. But we can also talk about green washing from the effect of Twitter allowing ads from fossil fuel companies that are an explicitly, how do I put this, do not tell the truth, and the journalism hat has cropped up to investigate that and discover that as best as it can.

Quinn Emmett:

It's an industry. Green washing has effectively been happening since... There's been versions of green washing forever, right? From the cigarette companies to the car companies to utilities not taking credit for their power lines starting wild fires. But yeah, like I said, it's both broad and pretty damming, but it is one of the bigger issues I think we're contending with, whether it's deliberate or a polished PowerPoint. Yeah, it's massively influential.

Boris Khentov:

It's a fancy term for misrepresentation.

Quinn Emmett:

Yeah. Absolutely.

Brian Colbert Kennedy:

Yeah, I feel like that term is sort of new to me, but it sounds like it's the same bullshit that's been happening forever.

Boris Khentov:

The challenge with that is there's a powerful incentive, a temptation to omit to the point of misrepresenting when the real thing to explain is hard, right? You can talk about green washing done in bad faith where people are just like legit hiding the ball, right?

Quinn Emmett:

Sure.

Boris Khentov:

But on the other side of the spectrum is if you're trying to explain to a retail investor how this portfolio or some product you're offering them does the thing they want it to do, it's really simple to just kind of like, "Yeah, yeah, you know what? Exxon, gone." Right?

Quinn Emmett:

Right, yeah.

Boris Khentov:

Conoco gone, all those bad companies that you see on the gas stations, all those logos, they are not in your portfolio. Here you go. You have an environmentally conscious portfolio, now hand me my fees, right?

Quinn Emmett:

Sure, and for a lot of folks, that actually does, on a very superficial level, check their box.

Boris Khentov:

Right, but I think most people who come to investment managers, to financial services companies and tell them that climate matters to them, I think they want more than that. I think they want more than just kind of that sense of satisfaction.

Quinn Emmett:

Right, well, and that's what I love about your blog post is you're very explicit about this isn't going to get it done, the thing that you think is divestment, and this is why, and this is also how we're approaching it.

Boris Khentov:

Yeah, because I think green washing in its most generous form is just an unwillingness to tackle the complexity and the sort of, I don't know, nascent stage of all of this methodology in this entire sustainable investing ecosystem. I came into this with I think the kind of humility that befits a novice, and the more I learned, the more humble I feel like I become, because it's just if you are out there selling certainty, then you're inevitably going to engage in some form of green washing, right? There are no easy answers.

Boris Khentov:

I think the only way to both give customers a sense that their values are being represented and also not misrepresent that is to cop to that complexity and say, "Look, we're not done here. This is a process, right?" Just like addressing climate change is a many, many year, multi-decade process.

Quinn Emmett:

Sure.

Boris Khentov:

So I think we'll be investing aligned with your values. I don't think it'll take decades, but I do think it'll take years.

Quinn Emmett:

Right, but it is also, like you said, important to just... I appreciate that, again, in your blog post and the way you've talked about it. Obviously third party press is going to take it the way it is, but it's important to be as transparent as you can about both the strategy and the machinations of how these things work, because some people come to it with excitement and some people come to it with outside expectations, certainly after the past 10 years. It seems like literally anybody can make money doing it, but there's also fears, depending on how you were brought up to manage money or what your economic situation might have been, and there's risk.

Quinn Emmett:

So while obviously there's more ways for people to invest in their values now, and that's going to become more definitive as we go along and define some of these things, and there's more ways to participate in huge growth opportunities, we've also never seen... This is something I'm curious about how you guys carry forward. Obviously you're not just going to set this portfolio up and pick a couple funds and leave it. There's really never been practical risks like what we're looking at. Some companies are going to be more exposed than others, but risks to physical assets across the board, across the country are real.

Quinn Emmett:

You look at what FEMA flood maps are doing to rewrite insurance exposure in the Midwest, right? Or fixed income and mortgage-backed securities. It's a whole new world with something like sea level rise, and we've got all this incredible earth science data, and it's open source, and it's almost live. So it's interesting, and I keep trying to exercise this muscle of holding two different things in my hands, which is there are companies that must be terrified, because they're very exposed, and they don't know how to deal with scope three emissions.

Quinn Emmett:

On the other hand, and you've got companies like IKEA and Apple who are saying, "We're transparently going to try to take those on as exponentially large as they are." But there's also probably some banks and asset managers who are sincerely trying to figure out how do we lead and revolutionize credit underwriting and risk management, right? How are we going to use all this new data to stress test climate impacts and trying to get ahead on the bonds and the green financing? I know you guys included that as a platform in the portfolio. But these risks, again, they're in every direction. I wrote this post called, "What are you exposed to?" It's so much more complicated than it's ever been. Microchips are in short supply, so [inaudible 00:51:05] is great, but EVs haven't even taken off yet. You got copper and cobalt is going crazy, but on the other hand, the US is almost completely dependent on China's clean energy supply chain for both EVs and solar panels, much less other rare earth minerals.

Quinn Emmett:

It's going to take a lot to be proactive and be transparent with folks, as much as you guys try to automate these things for people to say, "Look, we're going to track these practical risks and these developments, and we're going to incorporate them into the portfolio, because you can't just divest from Exxon."

Boris Khentov:

Yeah, and I think one of the things that we tried to sort of... The primary balancing act for us is to recognize that divestment, I do think it has a place in a climate portfolio. I think it speaks to that energy and that momentum that is... I think activism, the more I appreciate what is the value and the role of the voice in the streets, it's to change the laws, right? It is ultimately to build public support around legislative reforms, because as long as certain activities are legal and profitable, then capital will flow to them inevitably, in fact, the more you divest from a legal and profitable activity, the higher the returns for the people that remain willing to invest, right? It's this iron logic of capital allocation where increasing the cost of capital for a legal, profitable activity means increasing the expected return for a financier that's still willing to do it.

Boris Khentov:

So there's a self-correcting mechanism that the market has where the more you push away, the more profitable it is to actually finance, and therefore... But why does it matter still to cry divest at a protest? Because, well, in order to break that cycle, you have to make those activities not legal, not profitable. You could do that through laws, right? You won't be able to do that with your investment account, especially because no one will hear... When a university of a cyber wealth fund or Bill Gates says, "You know what? I'm divesting," that actually continues a conversation. That amplifies a signal in public discourse, which does lay the ground work for legislation.

Boris Khentov:

But you, in your brokerage account saying, "Well, I'm not going to buy these stocks," nobody's going to... That signal doesn't travel anywhere, and-

Quinn Emmett:

Sure, it feels good, but-

Boris Khentov:

Exactly. Exactly. But I think we're convinced that... You should feel good about your portfolio, by the way, right? You should feel good about what you're doing with your money.

Quinn Emmett:

Of course.

Boris Khentov:

But I think people want more than that, and I think the challenges is that the more than that, the more sophisticated kind of methodology that recognizes that every company in the global economy has a carbon footprint, and that we need to rank, score companies based on how they're managing that footprint, and that needs to be done relative to their peers in the space. So if you're, I don't know, a mall operator, there are mall operators out there that are intentionally managing their carbon footprint to be the best in class, right?

Boris Khentov:

If you are diversifying across every industry, whether it be aerospace or tech or commercial real estate, there's a leader in every sector that is doing the best in the context of what that business activity generates, right? So over-weighting those leaders and steering capital towards them, under-weighting those that are lagging, and potentially excluding entirely those that are just laggards irredeemably, that is a methodology that actually addresses the entire global economy. Right? Because what we really care about is actual emissions across every single industry, not potential future emissions in the form of fossil fuel reserves, right?

Boris Khentov:

That's a blunt tool to say we're just not going to invest in anything that owns a giant pool of petroleum. Sure, but what about the people that are already burning it? So trying to combine those two approaches into a single portfolio and say some of your funds will be steered towards a divestment approach via these index funds, and some of it will be sent towards a carbon footprint approach, which might include energy companies that are part of the transition, right? That they are actively diversifying into renewable fuels, that have set a course that we're diversifying out of these legacy fossil fuel businesses and towards renewables, but that kind of transition takes time, and you want to reward the management teams that have taken a big risk that have won an internal battle. Believe me, it's always a battle, and it's a fragile victory. You want to make sure that those kinds of leaders are rewarded.

Boris Khentov:

So that kind of approach obviously is not internally consistent at a very superficial level with, "But we just kicked all these companies out by divesting from them," right?

Quinn Emmett:

Right.

Boris Khentov:

So how do you reconcile that? Well, the way you reconcile it is you say, "You know what? This approach is evolving. We're trying to speak to both of these methodologies. We believe that you should be sending a vote for this approach as well as this approach." By way of investing through index funds, you are voting, because you're pooling your dollars with other investors. When the financial services industry and the industries that are invested, to whom the fund managers steer capital, when they see those numbers go up, that suddenly now your signal is being heard. Even if it's $100, it's being pooled along with everyone else. That's a signal that suddenly reaches its audience, right?

Quinn Emmett:

Sure. You know, it's interesting. I think you can also... I come back to what you were saying, you should feel good about your portfolio, and talking about this transformational change that's happening and going to happen, you can also reverse engineer that in the sense that someone signs up with your climate portfolio, right? And they feel good, and they've maybe read your post, and they understand all the different ways you guys are attacking this from all the ways that sustainable investing can be applied in this thoughtful way, and it's going to evolve.

Quinn Emmett:

But also, helping them feel good is to understand that... Again, you can superficially look at, "Hey, this is how the power sector is done the past 10 years," right? Abysmal, nightmare, but unless you're in it day-to-day or you're excited, like you're saying how excited you are to deal with complexity and then dial it back down, you have to grasp that geopolitical power has been defined by fossil fuel discovery, extraction, production, refinement, distribution for 100 years, right? Oil embargoes and gas shortages are like entire eras in history books, and there's been more and there's been wealth, and it's been iterated on, but that model's literally ending, and you have things happening like solar power costs are 50 years ahead of the IEA projections, right?

Quinn Emmett:

So it's not just these stocks in these companies and these workers and these executives that are going out of business or that you're divesting from, or on the other hand, you're investing in, entire economies are going away. So passive or not, I guess my point is there's going to be shifts that make someone... If you're 40, all of us are in the 35 to 45 range. So you're investing on a 25-year timeline or so, so you're not super progressive, you're not super conservative. But in the next 25 years, there's going to make shifts that make even the most passive retail investors very fucking nervous.

Quinn Emmett:

It seems like instruments like these and transparency and being proactive, helping basically hold their hands through this to help them focus on one of our big things is what you can control and what you can't seems advantageous. I'm just trying to reverse engineer that and think of the benefits of why to do something like this, looking forward and going, "We don't know much, but we do know a lot is going to change."

Boris Khentov:

Yeah. Look, I think this is super early innings for sustainable investing. I think a ton of people who know all this stuff better than any of us could dream of learning will admit that we are just setting out and figuring out what kinds of approaches actually capture the complexity of this investing. The beauty of index funds is that as long as you are broadly diversified, you are not going to really miss out on which sectors are surging versus which sectors might be on the way out. It's all balanced out. That's the nature of a market cap weighted approach, but there are a ton of really interesting index funds that are in the works that are either just barely launched and haven't reached the kind of scale that we would be comfortable with yet recommending, because we were assessing does this fund trade liquid? Is the liquidity sufficient where we could put our customer into this? Is there a trajectory in a good shape that we don't think it's just going to disappear in a year?

Boris Khentov:

But some funds are targeting not just... So beyond divestment, we're talking about carbon footprint management. Beyond carbon footprint management, we're talking a more holistic transition readiness scoring, right?

Quinn Emmett:

Sure.

Boris Khentov:

So there are funds that are in the works that are going to be ranking like, "Well, how ready is this particular company for a net zero economy?" It was the thesis that the ones that are more ready are going to perform better in the long term, and that this is not yet properly weighed in, priced into their market price. So that's a view, right?

Quinn Emmett:

Sure.

Boris Khentov:

Whether or not that is an interesting thing to incorporate, we'll evaluate it, right? There are some other funds that are going to focus on shareholder engagement, which is, well, now that you've bought the shares, what do you do with them? You actually negotiate with management and push them to rather than just use your capital allocation to reward and punish by buying and selling, you can also then engage further and push for actual change by influencing management's decisions. There are funds that are going to be focused on that. So that's really interesting.

Boris Khentov:

I think the approach we've taken with our climate impact portfolio is from the very beginning, we've said this is a work in progress, and anyone who tells you otherwise is probably obfuscating, probably painting over some kind of complexity that might complicate the story, right? We think it is a complicated story. We are here for you, and we are going to be working full time to continue to untangle the story. As interesting options, as evidence mounts that something should be included into this approach, we'll do that for you. You just tell us this matters to you, and we'll do the rest, right?

Boris Khentov:

So that really I think sets the right tone, which is to say we don't know what the answer is. We just know that this matters, and we're going to be working 24/7 to continue to drive this offering closer and closer to what you've told us is important to you. I think the response to this has been really positive, because it's just, I don't know, it's just honest. We don't know how else to message the fact that something is both important and yet not fully formed.

Quinn Emmett:

Yeah, yeah.

Brian Colbert Kennedy:

[crosstalk 01:03:48]

Boris Khentov:

That's the best we can do, yeah.

Quinn Emmett:

All you can do is be earnest about it.

Boris Khentov:

Yeah. For instance, the green bonds that you mentioned, we did include an allocation to green bonds that directly finance environmentally beneficial projects around the world. It's a really interesting fund with a lot of great transparency and integrity, but that being said, this is a world that's evolving quickly. The SEC just appointed the first ever ESG advisor. There are going to be new standards coming out that are going to be applied to the industry. What constitutes a green bond? What constitutes a good ESG score? All this stuff is going to evolve, and we're paying attention very closely.

Boris Khentov:

So as more data becomes available and some decision that we made, we might want to revisit or some entirely new thing becomes available, we're going to be sensitive to that, and we'll be doing that on our client's behalf. That's our proposition, right? Nobody knows, and we certainly don't, exactly where this goes, but we'll keep adjusting along the way.

Quinn Emmett:

That's all you can do.

Brian Colbert Kennedy:

I love this. I'm going to delete my Acorns app off my phone and switch to Betterment as soon as this conversation is over. Hell yes.

Boris Khentov:

I love Acorn. It's a great company.

Quinn Emmett:

Yeah, of course. Of course.

Brian Colbert Kennedy:

Oh good. I have no idea what I'm doing.

Quinn Emmett:

Brain, sort of take us home to the last third of this maybe.

Brian Colbert Kennedy:

Yeah, so the whole reason we do this, our action steps, yeah, so Boris, as we get into them, I'd like to just quickly talk about your background and role. We have plenty of scientists and policy makers in our community, investors, and CEOs, and farmers, and astronauts, but there's also probably some folks who are still trying to find their way into the climate fight. You got a JD, and then you were a computer engineer for a few years before joining Betterment, and you're the SVP of operations, right?

Boris Khentov:

Mm-hmm (affirmative).

Brian Colbert Kennedy:

Yeah. Is it typical that you'd be the person to write about the quantitative methodology behind your company's experimental new climate portfolio?

Boris Khentov:

No, I guess not. But then again, startups exist to create atypical outcomes. I think I've been very fortunate to really pursue what my personal passions are in light of I think what our customers want. I was a tax lawyer for a few years out of law school, and so I worked on Betterment's tax efficiency products for years. We have all kinds of automated services, tax laws harvesting, etc, things that really you kind of try to squeeze out as much return for our customers while sticking to our broadly diversified portfolio strategies.

Boris Khentov:

I think I was fortunate enough that my interests kind of aligned with where it seemed like our customers were asking us to go. I was a computer science major coming out of college, and was a software engineer for a few years before law school. I think it's just these days, it's all done with computers nowadays, I think is the expression. So that was just a helpful foundation to... I haven't written a line of code in, I don't know, a decade, but I know how it works, so I know what it can do and what it can't do, generally speaking.

Boris Khentov:

Then being a lawyer for a while and being able to parse through really dense regulations, well, a lot of our business is heavily regulated, and trying to understand where the rules are, why they exist, how we structure our offerings in a way that are aligned with the policy behind securities regulation. That was obviously a big plus. Now as things are emerging in this nascent space where it's not so much that there are laws, but there are principles, right? The law is just kind of an expression of I guess natural law, right? There are things that an average person with an average knowledge of the legal system who never went close to law school, which is good for them, right? Because they could avoid some serious student loan debt.

Quinn Emmett:

Different conversation.

Boris Khentov:

They understand, right? Intuitively that, well, you're not supposed to misrepresent something. You shouldn't say two plus two equals five and hide your work. You don't need laws for people to appreciate that don't do that, right? So I think as these principles around ESG are sort of coalescing into actual written guidance, like real regulations, it'll be a really interesting time, I think, to... Well, certainly for me personally to kind of apply whatever I've learned over the years and also to leverage that and channel it into technology. I think technology, for good reason, as gets a bad wrap these days, because in many instances, it's not used towards a customer's wellbeing. It's not used towards the general public's interest. It's certainly not necessarily used towards in the interest of the planet, but it can be. I think just having the right incentives in place, having the right business models and kind of staying true to the course and making sure that you're aligned with those outcomes, [inaudible 01:09:39] is just a tool, right?

Quinn Emmett:

Sure.

Boris Khentov:

It doesn't have a mind of its own. So how do we channel this tool towards the change that we want to see? That is where I see certainly Betterment's mission and my own personal mission as well.

Quinn Emmett:

I love that. Thanks. We're just always... Again, we've got all these incredible people that listen and read our stuff, but there's always folks coming up in finance or law or engineering or liberal arts, like me, they're trying to figure out how to operate inside or outside the box to participate and drive this transformation or drive infectious disease planning or biotech or whatever it might be. So it's always so helpful to hear people think about how they got to where they are and where they're going.

Quinn Emmett:

All right, Brian, finish this thing up. Let's get Boris out of here.

Brian Colbert Kennedy:

All right. Yeah, Boris, we always like to, like I said, get into and finish with our action steps, yeah? We always want to provide those to our listeners so that we can all support you and your mission with our voices and our dollars. So let's get into that, starting with voice. What are big actionable and specific questions that we should all be asking of our representatives to help support your mission?

Boris Khentov:

Well, boy, I have a lot of really very industry-specific and technical thoughts on this.

Brian Colbert Kennedy:

We can just have everybody record this part.

Quinn Emmett:

No, but that's what... We try to make it as specific and as actionable as they can be.

Boris Khentov:

I think what's really interesting, what's an area for... There's room here for public advocacy is I mentioned that the step that is involved... It's kind of fundamental to index fund investing is that once you have selected a fund manager that is managing according to your values and according to that mandate, that fund manager then holds the right to vote your shares on your behalf. There's some really interesting things around that system where the big, fun giants that are the Vanguards, Black Rocks of the world, they historically have not approached this voting duty as one of material importance, right? This is kind of like housekeeping. It's just something that an index fund manager doesn't think twice about.

Boris Khentov:

But now that there are environmental issues at stake where there's a crisis where an investor might say, "Well, it's not just enough that you've allocated my money to this company and away from that company. I want you to use those shares to vote." The system isn't really designed for a lot of transparency or accountability for how those fund managers vote, which is to say they report their votes sometimes every quarter, sometimes a year later. But people want to know as these massive trillion dollar entities are using their scale and leverage to influence companies, how did you vote on this shareholder resolution? Why can't we know right away? The vote was four months ago. Why do we have to wait for a report that summarizes all global activity, you know?

Quinn Emmett:

Sure.

Boris Khentov:

So one thing that the government can do, the SEC actually releases the results of such votes via kind of a barely human-readable feed that will remind you of the early internet days. But they also release it on a quarterly cadence, and it's not clear why they can't be releasing it in real time. If some, I don't know, Proctor and Gamble has a shareholder resolution that addresses potentially deforestation initiatives across their supply chain, and that vote took place in October, I don't know, say October 20th, why wouldn't we be able to find that on October 21st how all the shareholders voted? I'd like to know.

Boris Khentov:

The SEC I think has the ability to push out that information more or less in real time, which would, I think, drive accountability and force some of the big asset managers to reckon with what that means that their voting decisions are becoming available in real time. I think some enterprising, tech-savvy folks are going to build something very quickly around those feeds that create a mechanism for raising awareness around how these votes went, and it would be a great advocacy tool, I think.

Quinn Emmett:

No, I love that idea. If anything, you would think that would encourage more participation, or at least public discussion about these sort of things, because you're able to respond to them almost in the moment, as opposed to, like you said, looking up in quarter three and seeing that there was a vote in quarter two and going, "Well, that's been over for months now." Yeah. That's super compelling. I love that.

Quinn Emmett:

Boris, what about the dollar? How should people be, besides participating in your climate impact portfolio, and that's the answer as well, but what's the smartest thing for people to be doing here from your position?

Boris Khentov:

Look, I think, yeah, I'm certainly not on here trying to advertise our product. So thank you for the plug, but I think-

Quinn Emmett:

For sure.

Boris Khentov:

First and foremost, people should be taking care of themselves. They should be putting money aside to make sure that they are in a position to prioritize something that is important to them going forward. It's so important for people to kind of really carve out a lot of their mind space when necessary to make sure that they're saving for retirement, because people who are financially secure are people who then have the freedom to participate in movements that advance the things that we want to see.

Boris Khentov:

I wish that this were not a problem, but I think you see these days... I know it's hard. It's the pandemic and it's overbearing student loan debt, and it's just kind of bleak prospects for a lot of folks across the economy. It's tempting to try to find a way to get rich quick. I think it's fun to buy a little bit of Bitcoin here and there, but some of the stuff you see that's been happening with the meme stocks and the day trading, it's a little bit heartbreaking, because it's one thing if you're really just having a little fun with some play money. It's another thing when you read the stories of someone basically taking out a third mortgage to speculate on something, because the ordinary folks that are playing this game are inevitably going to get hurt. So I guess my answer is not what people should do, but what they shouldn't do. They should really try to stay away from things that promise you something that sounds like it's too good to be true, because it almost always is.

Quinn Emmett:

Yeah, that's the Willy Wonka story.

Brian Colbert Kennedy:

I'm certainly one of those people that is... I don't have a great relationship with money. I wasn't raised knowing how to wisely use it. When those things come around that seem too good to be true, it's easy to bite. It really is... Thanks for being so humble about not wanting to brag about your company, but stuff like this and Acorns, all that stuff is so helpful, I think, to a bunch of people, because if it's helpful to me, it's probably helpful to them. It's just wonderful and so helpful to have around knowing that my knowledge is very limited, but at least I have this very easy way to start trying to be smart with money. Wonderful.

Quinn Emmett:

Sure. Well, that's super helpful. Boris, man, we can't thank you enough for what you're doing and how thoughtful you're being about it and transparent, and for taking the time to come on here and all of that. Just last couple quick questions that we fire through with everybody, if that's all right.

Brian Colbert Kennedy:

Now it's time to have fun, Boris.

Quinn Emmett:

Easy, Brian. Easy. Boris, when was the first time in your life when you realized you had the power of change or the power to do something meaningful?

Boris Khentov:

Honestly, yeah, just put in those terms, probably just a couple years ago when I realized that whatever it was that I was seeing out in the streets. I'm not exactly out in the barricades, but just getting a glimpse at what street-level activist energy looks like and how there's a bridge between that and what we could do with our product, and the fact that I was able to convey that to my colleagues and galvanize us towards doing something more in this space. That felt really amazing to me, seeing that pay off more than a year later. It's been a pretty amazing experience.

Quinn Emmett:

That's awesome. Boris, who is someone in your life that has positively impacted your work in the past six months?

Boris Khentov:

Oh gosh, so many people.

Quinn Emmett:

You can pick a favorite.

Boris Khentov:

Honestly, it's my friend Franklin Leonard. I talk to him all the time, and he's got this... I don't know. He's got the 15 years of experience working within an industry to actually try to change an industry. He has such incredible integrity and business sense. His moral clarity is just unparalleled. So I think every time I think I have it hard, I think about the battles he's been waging in Hollywood to increase representation and diversity while speaking to companies' bottom lines ultimately and trying to make what should be a very obvious argument, and gradually his message is being heard, but it's taken so long. I think he's been an incredible friend and mentor, and just someone to shoot the shit with.

Quinn Emmett:

Yeah. I try to tell him as often as I can how much I fail, but try to measure myself by him and my actions on a frequent basis. It's a tough act to follow. That guy, through values and also through... Nobody loves data like that guy, and he wields it in such a powerful way. It's pretty awesome.

Brian Colbert Kennedy:

Franklin is to Boris like Quinn is to Brian.

Quinn Emmett:

Okay. Let's finish.

Brian Colbert Kennedy:

That's so great.

Boris Khentov:

Hey, I was being honest.

Quinn Emmett:

Thank you. Boris, what do you do when you feel overwhelmed? What is your self-care, your you time?

Boris Khentov:

I've been really into gardening these days, honestly. I've got a terrace, and I don't know, I grow sunflowers and tomatoes in the summer, and I just start manicuring and picking leaves off of things when I feel anxious and need to center myself. I just go out and start plucking dead leaves off of things, and it helps.

Brian Colbert Kennedy:

That's awesome.

Quinn Emmett:

I love it.

Brian Colbert Kennedy:

I want a garden. Boris, what's a book that you've read this year or maybe in the past year that's opened your mind to a new topic that you hadn't considered before or that's changed your thinking in some way? We have a really great big list of recommendations from past guests. You can add it to that.

Boris Khentov:

Well honestly, it's going back to my friend Ayana, she edited an anthology called All We Can Save, which is a collection of essays.

Brian Colbert Kennedy:

Oh yes, we're familiar.

Boris Khentov:

Yeah, I read that book cover to cover a few months ago when it came out, and it was just so refreshing to... Sometimes you start out as reading something from a friend thinking, "Well, at the very least, I'll be doing them a nice favor," but two pages in, I'm like, "No, no, no. The favor, she's the one doing us a favor," right?

Quinn Emmett:

Yeah, absolutely.

Boris Khentov:

Just it was so helpful to hear such diverse perspectives on the climate change problem, the crisis, and how much amazing thinking has been happening across literally every discipline by women who I think are just... I don't know, the names in there I'm sure are all going to become... Many of them are going to become very well-known people as we advance.

Quinn Emmett:

Yeah, yeah. That's the goal. All right, Boris. Where can our listeners follow you and Betterment online?

Boris Khentov:

Betterment.com. Easy, double T, and I'm on Twitter. My handle is @awesomeboris, one word.

Quinn Emmett:

Awesome, awesomeboris.

Brian Colbert Kennedy:

Awesomeboris, boom.

Quinn Emmett:

Well, listen, Boris, can't thank you enough, man, for your time and everything you're doing. Look forward to watching you guys help try to move the needle in the way that you can.

Boris Khentov:

Really appreciate your time, guys.

Brian Colbert Kennedy:

Yeah, this has been really great. Thank you very much.

Quinn Emmett:

Awesome, awesome.

Boris Khentov:

Thank you so much for engaging in all this stuff and being thoughtful and caring, giving a shit I believe is the-

Quinn Emmett:

Yes, there you go.

Boris Khentov:

Yeah, okay.

Brian Colbert Kennedy:

Yeah. Giving a shit, Boris.

Quinn Emmett:

All right, Boris. We will talk to you soon, my friend.

Quinn Emmett:

Thanks to our incredible guest today and thanks to all of you for tuning in. We hope this episode has made your commute or awesome workout or dish washing or fucking dog walking late at night that much more pleasant. As a reminder, please subscribe to our free email newsletter at importantnotimportant.com. It has all the news most vital to our survival as a species.

Brian Colbert Kennedy:

And you can follow us all over the internet, you can find us on Twitter @importantnotimp. Just so weird. Also on Facebook and Instagram at Important Not Important, Pinterest and Tumblr, the same thing. So check us out, follow us, share us, like us, you know the deal, and please subscribe to our show wherever you listen to things like this. If you're really fucking awesome, rate us on Apple Podcast, keep the lights on. Thanks.

Quinn Emmett:

Please.

Brian Colbert Kennedy:

You can find the show notes from today right in your little podcast player and at our website, importantnotimportant.com.

Quinn Emmett:

Thanks to the very awesome Tim Blaine for our jamming music, to all of you for listening, and finally, most importantly, to our moms for making us. Have a great day.

Brian Colbert Kennedy:

Thanks guys.