Northern Trust 2020 CSR
2020 Northern Trust Corporate Social Responsibility Report
2020
Corporate Social Responsibility Report
Achieve Greater
A Letter from
Connie L. Lindsey and Michael O'Grady
We hope this message finds you in good health. Throughout this year’s 2020 CSR report , you will find details of our progress toward creating long-term value for our clients, employees and stakeholders. For us, 2020 was a year focused on compassion, communication and support, during a period of extraordinary social, health and economic challenges.
In 2020, we introduced a new, highly focused philanthropic strategy that concentrates our volunteerism and contributions on four key areas of fundamental impact: educational excellence, food security, accessible healthcare and affordable housing. By extending access across the globe to these essential human needs, we are furthering Northern Trust’s commitment to creating more equitable possibilities to achieve long-term financial success for those who face unfair hurdles because of their race, ethnicity, gender, geography or socio-economic conditions.
We also see a healthy global environment as fundamental to the long-term financial success of our various stakeholders. Northern Trust set a goal to reduce our carbon emissions by 25 percent per employee by 2020 using our 2015 data as a baseline. By the end of 2020, we had reduced our emissions by more than 62 percent, and continue to reduce our carbon emissions as well as expand the types of emissions on which we report. We are continuing to develop our renewable energy electricity supply. In 2020, we supplied over 12 percent of our real estate portfolio with renewable electricity supply.
We also see a healthy global environment as fundamental to the long-term financial success of our various stakeholders.
From an investment perspective, we view the integration of environmental, social and governance factors as a key aspect of our fiduciary heritage. In 2020, we launched ESG Insights, a service that offers clients a quantitative approach to measuring ESG factors as well as detailed reporting that includes carbon footprint analysis.
Finally, we recognize our employees as a critical element of our success. We are grateful for their continued commitment to our clients, communities and to one another. As we continue to strategically develop a diverse pipeline of future leaders, we provide an array of resources and unique programs that engage our talent and strengthen our culture of inclusion.
As we navigate the opportunities and challenges ahead of us, our legacy of service, expertise and integrity undergird the sustained success of our business and focus on the future.
As we navigate the opportunities and challenges ahead of us, our legacy of service, expertise and integrity undergird the sustained success of our business and focus on the future. We are thankful for the continued confidence our clients, our employees and key stakeholders continue to place in us.
Thank you for reading our 2020 Corporate Social Responsibility Report.
Our Approach to CSR
Corporate responsibility is an essential element of our culture and underpins our enduring principles of service, expertise and integrity.
Report for Content
This report has been created in response to interactions with key stakeholder groups. Each stakeholder group is expected to use this report to gauge Northern Trust’s progress on achieving our goals pertaining to Environmental, Social and Governance (ESG) matters. This report has been prepared in accordance with the Global Reporting Initiative (GRI) Standards: Core option.
Period, Scope and Boundary
This report is based on information obtained, created and compiled for the fiscal year ended December 31, 2020, unless otherwise stated. Our previous report was for the fiscal year ended December 31, 2019. The boundary of this report includes 100 percent of our leased and owned offices and 100 percent of our workforce in all global regions in which we operate. No joint ventures or other entities are included unless otherwise noted. There are no restatements from prior years and no significant changes in size, structure, supply chain or ownership from previous reporting periods.
In response to COVID-19, we adjusted our operations by enacting business continuity plans through which the vast majority of our workforce were working from home. We deployed monitors, laptops and power packs to employees, transitioned client events to online venues and employed virtual internal meetings.
Northern Trust actively engages in dialogue with our stakeholders, including clients, employees, shareholders, communities, regulators and suppliers.
These stakeholder groups are determined based on our business strategy of serving corporations, institutions and individuals worldwide. Each stakeholder group informs our reputation, policies and best practices. We believe it is imperative to consult regularly with these groups through periodic meetings, electronic communication, conferences and other platforms. Through these interactions, we receive suggestions and concerns related to our business practices.
Material Aspects
The report provides details on the material aspects and topics that reflect economic, environmental and social impacts relevant to our business. In 2020, we conducted a review of our materiality assessment. Our new strategy reflecting such assessment will be described in our 2021 CSR report.
Shared Value
Since our founding in 1889, Northern Trust has actively advanced a culture of caring and a commitment to invest responsibly in the communities we serve worldwide.
We invest in our communities through progressive community investments, contributions to service and community organizations, employee volunteerism, gifts in-kind, supplies and other knowledge services and directorship guidance to charitable and civic boards. Our approach to supporting our communities considers the impact on our clients, shareholders and employees, and we execute each activity with these priorities in mind.
Brand Awareness
Part of our brand strength relies on community sponsorships and alignment with highly respected, nonprofit institutions.
Charitable grants, event sponsorships, charitable and civic board representation and employee volunteerism are integral to our marketing strategy and serve to help raise brand awareness and brand equity in our target markets around the world.
Global Philanthropic Strategy
In 2020, we introduced a new, highly focused philanthropic strategy that concentrates our volunteerism and contributions on four key areas of fundamental impact: educational excellence, food security, accessible healthcare and affordable housing. We have committed $20 million over the next five years to extending access around the globe to these essential human needs.
Through our efforts, we will create more equitable opportunities to achieve long-term financial success for those who face unfair hurdles because of their race, ethnicity, gender, geography or socio-economic conditions. Programs we support are now providing shelter for children in India and ensuring health services for vulnerable populations in London. In Chicago, through the new Northern Trust Foundation, we are expanding access to resources that address the needs of young people on Chicago’s South and West Sides.
In 2020, Northern Trust made charitable contributions of $16 million, over 1% of our pre-tax net income. Throughout the past 10 years, we have given nearly $160 million to charities globally.
We have committed $20 million globally over the next five years to expanding access to resources that address essential human needs.
Community Engagement
Community engagement opportunities and paid time off for volunteerism enhance our communities and provide a competitive advantage in employee recruiting and satisfaction. Options for employee volunteerism are consistently a priority for college graduates considering future employers. Nonprofit and civic board involvement is integral to talent management, as it provides employees with leadership experience, skills development and networking opportunities beyond the scope of their responsibilities.
In 2020, Northern Trust launched iVolunteer, a new global engagement platform that helps employees identify, engage and develop relationships with local charities. During this past year of virtual work, a crucial component of this platform was our Virtual Volunteer Hub, which enabled employees to find and participate in virtual volunteering activities. This platform helped enable employee participation through our volunteer campaign, Achieving Greater Together. During the 2020 Achieving Greater Together campaign, our employees contributed more than 5,500 hours of service, supporting more than 180 global charities. To further encourage employee involvement in their local communities, we offer all employees two full days of paid time off to volunteer with approved nonprofit organizations. Over the past 10 years, our employees have contributed nearly 1 million cumulative hours of volunteer service. Despite the challenges brought about by COVID-19 restrictions, our Achieving Greater Together campaign enabled employees to participate in activities such as virtual mentoring to underserved youth and writing letters to frontline healthcare workers, seniors in retirement homes and sick children.
Neighborhood Entrepreneurship Lab
The Neighborhood Entrepreneurship Lab invests capital, shares networks and offers expertise to budding entrepreneurs in neighborhoods throughout Chicago. Established through a partnership between Accion and the Chicago Community Trust, the program pairs promising local entrepreneurs with investors, advisors and project associates. Northern Trust employees have served as a project associates since the program’s launch in 2018. This year, 10 Northern Trust employees served as advisors to entrepreneurs, conducting nine months of regular coaching and hosting specialty workshops reflecting their business areas of expertise. Through their ongoing, in-depth guidance, our employees have helped the entrepreneurs increase revenue, improve profit margins and expand their number of employees.
Response to COVID-19
To support those communities most impacted by COVID-19, we committed $3 million in philanthropic support to nonprofit organizations around the world, including those that provide healthcare, food and other humanitarian relief. These included the Global FoodBanking Network, the United Nations Solidarity Response Fund of the World Health Organization, the United Way Worldwide, Doctors Without Borders, Feeding America and Meals on Wheels.
University of Greenwich Mentor Programme
Through this London-based opportunity, more than 30 employee mentors were paired with business school students from diverse backgrounds, many of whom are the first in their families to attend institutions of higher education. Our employees helped to build students’ professional confidence, develop employability skills and prepare for a successful transition to graduate-level employment. Since 2011, more than 300 employees have participated. Some mentees have joined our internship program, obtained full-time positions with us, and even become mentors themselves.
Lunchtime Knitting Group for A Little Lifetime Foundation
In our Dublin and Limerick offices, a group of about 20 employees meet virtually to provide support to A Little Lifetime Foundation. Founded in 1983, the organization promotes healthy grieving for families who have experienced the loss of a baby at any stage of pregnancy or after birth.
Support for Victims of Typhoon Vamco
Through a wide-reaching donation drive in our Manila office, employees supported families and individuals impacted by Typhoon Vamco, a deadly Category 4-equivalent storm that struck the Philippines and Vietnam.
Response to Australian Bushfires
Northern Trust donated funds to the Australian Red Cross in response to the thousands of devastating bushfires that burned more than 46 million acres, destroyed at least 3,500 homes and killed 34 people between September 2019 and March 2020.
Northern Trust is dedicated to building stronger communities by investing financial resources in the neighborhoods in which we do business.
We believe true community revitalization starts at the neighborhood level through the empowerment of community stakeholders and residents. The Northern Trust Company’s Community Reinvestment Act (CRA) designation as a “wholesale bank” allows us to concentrate efforts and resources on direct investments that have a sustainable community impact. The Corporate Governance Committee of the Board of Directors receives an annual CRA and fair lending report and approves our policy related to community reinvestment. We have maintained an outstanding CRA rating for 26 consecutive years. In 2020, we originated new Community Investments totaling over $1 billion. As of December 31, 2020, our combined community investments portfolio exceeded $3 billion and consisted of:
Affordable Housing
($3 billion portfolio)
OBJECTIVE: Support the creation and retention of affordable rental housing and affordable homeownership in partnership with mission-driven lenders and developers.
20Ability Housing, Central Florida
Ability Housing produces supportive housing opportunities for adults with disabilities as well as individuals and families at risk for homelessness. Ability Housing is nationally recognized for the quality of its housing developments and its excellence in property management and supportive services. The returns from Northern Trust’s investment helped fund pre-development and acquisition expenses, allowing Ability Housing to act swiftly on new opportunities.
Education and Social Services ($185 million portfolio)
OBJECTIVE: Provide long-term capital and equity for the development of community and education facilities and programs such as charter schools, health clinics and day care centers.
Colorado Coalition for Homeless, Denver, Colorado
The Colorado Coalition for the Homeless creates lasting solutions to homelessness by providing integrated housing, health care, and vocational and supportive services to homeless individuals. Northern Trust’s investment supported the Coalition’s development of the Recuperative Care Center and the Renaissance Legacy Lofts. Serving 500 individuals annually, the Recuperative Care Center provides primary care through physicians and nurse practitioners, nursing care, pharmaceuticals, behavioral health care and on-site case management. It also assists clients in their transition to longer-term housing, which may be located in the 98-unit Renaissance Legacy Lofts. Housing and services are seamlessly coordinated across multiple services systems, helping residents to maximize their self-sufficiency by addressing their underlying illnesses and causes of their homelessness while increasing life skills.
Serving 500 individuals annually, the Recuperative Care Center provides primary care through physicians and nurse practitioners, nursing care, pharmaceuticals, behavioral health care and on-site case management
Job Creation ($208 million portfolio)
OBJECTIVE: Support mission-driven micro-loan origination programs and the expansion of businesses and job creation through private equity funds.
Live6 Fund, Detroit, Michigan
According to the Urban Institute, outside of some core downtown areas, up to 30 percent of downtown Detroit remains vacant, more than a third of residents live in poverty, and job growth is stagnant or declining. In response to these inequities, key stakeholders partnered to create the Strategic Neighborhood Fund (SNF), which directs private investment toward community-driven projects in 10 high-impact neighborhoods outside the downtown core. Through our equity investment in the Live6 Fund, Northern Trust provides capital to SNF borrowers whose real estate projects in severely distressed areas of Detroit support commercial density and bring quality jobs to communities. The Fund extends the SNF’s available resources and helps cushion borrowers from the economic risks associated with launching ambitious projects in emerging neighborhoods.
COVID-19 Response - Paycheck Protection Program (PPP) Investments
To provide economic relief to small businesses that were adversely impacted by the COVID-19 stay-at-home orders, the Coronavirus Aid, Relief, and Economic Security (CARES) Act established the PPP loan program. Community Development Financial Institution (CDFI) small business lenders, which serve economically disadvantaged communities often not well-served by traditional lenders, needed capital to meet the needs of small business borrowers. Northern Trust acted quickly, providing over $100 million in low-cost investments and enabling multiple CDFI small business lenders to provide PPP loans to their borrowers.
Wealth Accumulation ($37 million portfolio)
OBJECTIVE: Invest in CDFIs and community credit unions that provide capital to meet the needs of the unbanked, underbanked and underserved members of our communities.
Community Federal Credit Unions
By offering depository and loan products in low-income communities, federally designated credit unions combat predatory lending, including high-cost payday loans. Northern Trust supports this mission through our investment in several community federal credit unions.
Employees
We recognize that our employees are critical to our success, and we take seriously our search for and retention of top talent.
To achieve our recruiting goals, we target our talent identification, sourcing methods and recruiting strategies to specific locations using a variety of channels including job boards, colleges, professional networks, associations and online social networks. We base hiring decisions on a variety of factors, including educational background, diversity, relevant experience, past accomplishments, professional licensing and strong evidence of integrity and ethical behavior.
Talent Management & Education
Northern Trust's talent management department is led by the Chief Talent Officer, who reports directly to the Chief Human Resources Officer (CHRO). This team is accountable for establishing policies, programs and practices focused on learning and development, talent planning and organizational effectiveness. This team also works closely with functional learning and development teams to deliver holistic training solutions.
Learning & Development
Through the Northern Trust University portal, employees can easily access a customized portfolio of core professional, manager, sales and client-servicing training solutions.
In 2020, employees consumed
more than 460,000 hours of
training in self-paced, virtual,
and instructor-led formats.
Our Future-Focused Skills Learning Center is designed to increase employees' proficiency in the skills needed to serve our clients in a digital economy. Programs launched in 2020 included data analytics, commercial acumen and digital acuity skills. Other enterprise-wide initiatives include an Enhanced Unconscious Bias Program and a Working and Growing Remotely Series (with a focus on Resilience and Wellness).
Northern Trust provides targeted development opportunities for employees transitioning into management and throughout their management career. Our interactive programs include curated content from external providers as well as internally developed content from our own thought leaders. All programs include opportunities for peer networking and direct access to well-known expert facilitators.
Northern Trust encourages our employees to pursue further education. Our U.S. Education Assistance Program, which provides tuition reimbursement for undergraduate and graduate degrees, enabled 268 participants to complete more than 930 courses. Through our Education Assistance Programs in Europe, the Middle East and Africa (EMEA) and the Asia-Pacific (APAC) regions, more than 400 employee participants attained various industry certifications.
Talent Planning
Northern Trust continually assesses our talent pool to ensure we have the breadth, depth and diversity of technical and leadership skills to execute our business strategies today and in the future. Managers conduct talent assessments for more than 7,000 employees annually, and business and regional leadership teams hold regular talent review discussions focused on specific topics, such as workforce needs, diversity, top talent, readiness for promotion, readiness-to-move and succession plans. Each year, our Chief Talent Officer holds a talent review meeting with members of our senior management. A formal talent review is also conducted with our Board of Directors each year, led by our CEO and CHRO.
To help employees strengthen and build new skills and navigate their careers, we provide several resources and manage several programs to develop and equip a diverse pipeline of future leaders.
The Rotational Development Program helps employees at the entry-level build their technical and leadership skills in a specific career track—credit, finance, investments, asset servicing or technology. Rotations involve training, mentors, speakers, community service and a case challenge.
The Enterprise Talent Leadership Program prepares a diverse range of mid-career talent for leadership success. The program includes assessments, career and development planning, executive coaches, mentors, speakers, targeted development and exposure to senior leadership. More than 50 percent of the program's alumni have either achieved or are in the pipeline for key leadership roles.
For employees at the senior level, we establish clear expectations and conduct robust conversations around career development focused on accomplishments, experiences and aspirations. We also facilitate a Dialogue with Directors program that gives managers exposure to our Board of Directors and enables the Board to engage with talent throughout the organization.
Organizational Effectiveness
Our Talent Management team also oversees strategic workforce planning, organizational design and effectiveness, performance management, engagement and recognition. Our internal center of excellence provides consultation, design and implementation support. Priorities are set by our CEO and communicated to each business, department, team and individual, and managers are encouraged to provide regular feedback and coaching to elicit performance and results.
Northern Trust remains committed to making all employees feel supported, connected, and heard.
We collect employee perspectives and ideas through our annual Engagement Survey and use this feedback to inform Northern Trust’s strategic priorities and measure progress of those efforts over time.
2020 was an extraordinary year with extraordinary circumstances, and our employees responded positively to our actions to support them. Nearly four out of five employees participated in the survey, and average engagement ratings were up 9.3 percent. Our most improved areas were associated with our employees’ ability to work remotely during the pandemic while obtaining the information and support needed to do their jobs. Scores relating to our commitment to diversity and inclusion and our practices to attract and retain diverse talent also significantly improved.
The Future of Work
Northern Trust recognizes that the events of 2020 are accelerating change around expectations of how and where work will get done in the future. To assess the impact of those trends on our ability to continue to create value for all Northern Trust stakeholders, we established a global, cross-functional taskforce to develop a framework for the Future of Work at Northern Trust. The goals of the taskforce were to identify a framework and key enablers for a post-COVID-19 work environment that enhance client satisfaction, maintain our risk profile, strengthen our unique culture, improve employee engagement, and help us achieve our financial goals. Our approach will reflect our continuing commitment to diversity, equity and inclusion (DE&I) by integrating best practices and ensuring accountability.
Elements of the group’s recommendations to be designed and implemented in 2021 include consideration of additional options for flexible work, enhanced technology, training and support for employees and managers working in a hybrid environment, as well as refined purpose for our physical offices, focusing on client service, collaboration, connection, and community.
Diversity, Equity & Inclusion
Northern Trust’s core values of service, expertise and integrity are foundational to our commitment to an inclusive culture in which all individuals must be welcomed, respected, supported and valued so that they can fully participate in and contribute to our success. Our focus on DE&I helps us provide unrivaled service to clients and creates a healthy, thriving work environment for employees from diverse demographic groups, leadership styles and skill sets.
Our vision for DE&I is embedded at all levels of the organization, with women and ethnic minorities representing more than half the members of our Board of Directors as well our U.S. Executive Vice President population. Reflecting the importance of DE&I, our Head of Corporate Social Responsibility and Global DE&I serves as an Executive Vice President and reports directly to our Chairman, President and CEO. Two Chief DE&I Officers are responsible for the design and execution of topic-relevant programs across North America, EMEA and APAC. Our Board, through its Corporate Governance Committee, also engages in active oversight of our DE&I strategies, programs and principles.
Our strategy is driven by three priorities: Drive Accountability, Enhance Development Programs and Placement, and Advance Culture.
As part of our enhanced governance model, senior leaders report progress to senior management through our DE&I Executive Council. Our Business Unit leadership, Regional Councils and Business Resource Councils facilitate the development of an inclusive culture that values and leverages DE&I to achieve and sustain superior business results.
Our strategy is driven by three priorities: Drive Accountability, Enhance Development Programs and Placement and Advance Culture. These strategies enhance our focus on the hiring, development and advancement of women and people of color at every level.
Drive Accountability
We use a DE&I dashboard as a mechanism to increase representation at all levels through continued measurement of hiring, promotion and retention. To ensure diversity, we require recruiters to present diverse candidate slates. We have also implemented diverse interview panels and decision-makers in the interview process.
Enhance Development Programs and Placement
Our Global Internal Mobility Program enhances the professional development and growth of our employees. Through our robust job-listing system, employees have transparency into available positions, can set up job alerts, and can find and apply for roles that match their career aspirations. The system supports Northern Trust’s global framework and allows us to engage a deep and diverse pool of internal talent to enable future growth. To further identify and develop a deep pipeline of diverse talent at various levels across the globe, our employees have access to a variety of external and internal programs.
Through our robust job system, employees have transparency into available positions, can set up job alerts, and can easily find and apply for roles that match their career aspirations.
In September 2020, we invited more than 150 Black Northern Trust employees in the U.S. to participate in the McKinsey Black Leadership Academy. This Academy is focused on accelerating Black leaders on a global scale and is comprised of two programs: A Black Executive Leadership Program targeting executives and a Management Accelerator Program targeting early-to-mid-career leaders. These programs are focused on building leadership capabilities and giving our employees critical skills to grow personally and professionally.
In India, we host development programs targeted for high-potential women across various levels of the organization. The first program focuses on women at both the individual contributor and junior management levels. Its modules explore personal power, assertive influencing and building and leveraging a powerful network for success. Our second program focuses on women at the middle-management level with a focus on mindful leadership. This program utilizes individual assessments, one-on-one coaching and group and individual activities. We also conducted three workshops on “women and ambition” for high-potential employees at the early-career level. Since the program’s inception in 2018, 93 percent of participants have been promoted and our current retention across both cohorts is 94 percent.
In a year that brought extraordinary challenges, including the COVID-19 pandemic and the racial injustices experienced by Black people in the U.S., 2020 was a year focused on compassion, communication and support.
Advance Culture
With a focus on advancing Northern Trust culture to create a more diverse and inclusive environment, we introduced the following in 2020:
DE&I Training
We launched a global unconscious bias training module course for all employees as well as a three-part Unconscious Bias & Inclusive Leadership training designed specifically for managers. The trainings help our employees recognize their own biases, understand how these biases affect their decisions and interactions, and develop skills and strategies to mitigate them. To enhance our inclusion efforts, we added inclusive leadership language to many of our manager training courses.
Pronouns in Email Signatures
To support a culture of respect and belonging, we introduced the option for employees to add pronouns in their email signatures. As part of this global initiative, we conducted Pronouns & Gender-Inclusive Language training to promote inclusion of gender identity and expression at Northern Trust.
Conversations around Racial Inequity
In a year that brought extraordinary challenges, including the COVID-19 pandemic and the racial injustices experienced by Black people in the U.S., 2020 was a year focused on compassion, communication and support. Northern Trust openly engaged in conversations around racial inequity and action in support of DE&I and developed resources to support the positive mental health of our employees.
Global Knowledge Center
We launched our DE&I Knowledge Center to help our employees gain deeper understanding and insight into the root causes of racism, as well as educate and engage our employees on ways to feel empowered, seek solutions and take action. The Knowledge Center supports our culture of engagement, in which we share external and internal DE&I messages to create transparency and elicit action.
Culture of Engagement
To further support our culture of engagement, we strengthened our DE&I employee communications, including messages from our executives and senior leaders. We conducted a series of panel discussions, small group discussions and individual conversations to create a structured dialogue about racial inequities and to empower employees to share their experiences.
Juneteenth
Northern Trust closed its U.S. offices early on June 19, in honor of Juneteenth, the oldest nationally celebrated commemoration of the ending of slavery in the United States. Employees were encouraged to take this time for reflection and to serve their communities, re-commit to DE&I and learn about the significance of Juneteenth.
Our virtual forum, "Connect in the Cloud," allowed our employees across the globe to connect with each other in a more casual way by responding to weekly prompts and sharing pictures and thoughts.
Mental Health and Well-Being
With the health of our employees across the globe at the forefront, we developed a dedicated Mental Health and Well-Being site. Containing internal and external resources, the site supports our employees in areas including Protecting Health During COVID-19 and Personal Resiliency Tips. With the objective of engaging employees in something fun in a remote work environment, the Human Resources team launched “Connect in the Cloud.” This virtual forum allowed our employees across the globe to connect with each other in a more casual way by responding to weekly prompts by sharing pictures and thoughts.
Business Resource Councils
Northern Trust offers a series of Business Resource Councils (BRCs), employee-initiated and governed groups that increase education and awareness through engagement-based activities. BRC participation is voluntary and open to all employees who are interested in the mission of the group. Each BRC is sponsored by an executive leader who advocates for the group internally and externally. The groups work with our DE&I team to align initiatives to the BRC pillar framework, DE&I strategies, and corporate priorities.
Our BRCs support our culture of engagement through programs and initiatives centered around professional development, assisting in attracting diverse talent, providing diverse insights to the business through focus groups, and enhancing cultural understanding across our employee population.
In 2020, with most of our employee population working remotely, the BRCs’ programming and initiatives shifted to a virtual setting, allowing for expanded employee participation as well as opportunities for BRC collaboration across the regions.
A few key programs and initiatives included:
International Day for Persons with Disabilities
Observed annually on December 3rd, this day promotes the rights and well-being of people with disabilities. Led by the Disability BRC chapters globally, we marked the date across our Northern Trust offices with a number of programs including a global disability inclusion panel event in partnership with Disability:IN Chicagoland, educational seminars with Humanity and Inclusion in Manila, and a session on the power of storytelling with international disability rights advocate Joanne O’Riordan.
Pride Month Commemoration
The Pride BRC chapters across the globe commemorated the month of June with initiatives focused on allyship, awareness and advocacy. Highlights include our India and Ireland locations winning the Global Ally Gamification challenge sponsored by Pride Circle; North America hosting a month-long learning series focused on “Breaking Down the Acronym;” and offices across the APAC region hosting LGBTQ+ 101 workshops for managers. To show virtual support for our internal and external communities, many of our employees, including our CEO and members of senior management, inserted a Pride flag filter over their Northern Trust profile pictures. Additionally, employees participated in the Rainbow Around the World virtual Pride Parade.
World Mental Health Day
The impact of COVID-19 on the mental health of millions of people globally gave 2020’s World Mental Health Day on October 10th particular significance. Recognizing the importance of mental health to the well-being of our employees, we encouraged our employees to support their own well-being, practice self-care and learn where they can access help and support when they need it. Programming included workshops on stress management and mindfulness, virtual yoga sessions and a global broadcast featuring a mental health expert and psychologist discussing the pandemic’s impact on mental well-being and where to get expert help.
Northern Trust's Business Resource Councils:
Human Rights and Workforce Principles
Northern Trust's human rights and workforce principles apply to all global operations and clearly signify our support for the rights of minority groups, women and workers. Our principles expressly reference our conformance with public policies including the International Labour Organization's (ILO) standards and the Organisation for Economic Co-operation and Development's (OECD) guidelines for multinational enterprises. Employees worldwide may exercise freedom of association regarding collective bargaining and trade agreements as permitted by applicable regional laws.
We apply these standards to our suppliers and vendors as well as our employees, who receive training on anti-discrimination, DE&I, and the prevention of sexual harassment. We also provide training on cultural change, which is especially helpful for expatriates and employees serving short-term assignments abroad or experiencing global relocation. Several senior-level company officers are responsible for overseeing the execution of our human rights and workforce standards. These standards commit us to providing fair and equal wages to employees regardless of gender and offering competitive compensation and benefits to our workforce.
Northern Trust's human rights and workforce principles apply to all global operations and clearly signify our support for the rights of minority groups, women and workers.
Core Aspects
Board governance, ethics, and management of political influence are essential components of our CSR strategy.
Connie L. Lindsey, Executive Vice President and Head of Corporate Social Responsibility and Global DE&I, is responsible for the design and execution of our comprehensive CSR strategy.
Ms. Lindsey reports directly to Michael G. O'Grady, Chairman, President and CEO of Northern Trust Corporation (Corporation). Ms. Lindsey also chairs the Executive CSR Council, a group of senior employees that enables the implementation of Northern Trust's CSR strategy through the setting and tracking of goals related to material aspects of our CSR strategy, including sustainability initiatives. The Corporation's Board of Directors provides general oversight of Northern Trust's corporate citizenship and social responsibility matters of significance to the Corporation and its subsidiaries.
The Board's Corporate Governance Committee facilitates this oversight. The Board's Business Risk Committee provides oversight of certain financial and operational risks associated with climate change and other environmental risk factors through its oversight of the Corporation's global risk management framework and risk management policies.
We expect all employees to uphold our core values, exercise the highest ethical judgment and comply with the laws and regulations that govern our business. We expect employees to treat all information appropriately based on its classification. Breaches of highly sensitive client or business information may result in disciplinary action. All employees are required to take the following five courses annually: "Anti-Money Laundering (AML) & Economic Sanctions,” "Antibribery, Corruption and Fraud," "Global Privacy and Data Protection," "Information Security,” and "Standards of Conduct.” All employees are also required to certify their compliance with the Code of Business Conduct and Ethics. Each of the training courses was completed by more than 99 percent of assignees in 2020. Additionally, certain employees are required to complete periodic certifications and attestations regarding personal securities transactions, political contributions and the provision of gifts and entertainment. Employees in the APAC and EMEA regions complete expanded AML, conduct and privacy training in accordance with the regulatory characteristics of those respective regions.
Employees in the APAC and EMEA regions complete expanded AML, conduct and privacy training.
Government Relations
and Political Contributions
Northern Trust concentrates its public policy positions in areas most relevant to its businesses, including U.S. federal, state, municipal and European Union financial regulatory reform efforts. We work with the trade associations of which we are members and meet directly with federal, state and municipal legislators, regulators and other government officials globally to discuss our positions and make recommendations for improved policy and regulation. At the U.S. federal level, we focus on proposed regulatory and policy changes that will affect our businesses through enhancing the safety of client assets, the safety and soundness of the financial system and the strength of the global economy. At the state and municipal levels, we regularly meet with elected and appointed officials to discuss public policy positions that will affect our businesses. In appropriate circumstances, we file comment letters to proposed federal regulations, copies of which are publicly available.
The Corporate Governance Committee of our Board of Directors provides oversight of the political, lobbying, and other public advocacy activities of Northern Trust, including significant trade association memberships.
Political Contributions by Employees
Northern Trust expects employees to seek guidance and pre-clear certain individual political contributions in accordance with the guidelines set forth in federal, state and municipal "pay-to-play" regulations and internal policies and procedures.
Corporate and Political Action Committee Political Contributions
Northern Trust contributes corporate funds to industry trade organizations in support of the corporation’s public policy objectives. Participation in these organizations is important to gaining industry insight, fostering relationships, and developing professional opportunities within the industry. The principal trade associations to which Northern Trust belongs are the American Bankers Association, the Bank Policy Institute, the Investment Company Institute and the Securities Industry and Financial Markets Association. We are also a member of the Illinois Bankers Association, the California Bankers Association and the Florida Bankers Association.
Northern Trust engages in the political process to advance and protect its long-term interests, and it does so without regard to the private political preferences of our executives. Northern Trust does not contribute directly to political parties, committees or candidates for public office. However, it sponsors both a federal-only political action committee (PAC) and a multi-candidate PAC, both of which are permitted to solicit different segments of a restricted class of Northern Trust's U.S. employees for contributions used to fund candidates who support legislation important to Northern Trust. All contributions to the PACs are voluntary; employees are neither favored nor disadvantaged based on their participation. The leadership of each PAC reviews proposed political contributions based on the public policy interests of Northern Trust. Federal lobbying reports may be found at: https://www.northerntrust.com/united-states/about-us/corporate-social-responsibility/policy.
We expect all employees to
uphold our core values,
exercise the highest ethical
judgment and comply with the
laws and regulations that govern
our business.
Northern Trust engages in the political process to advance and protect its long-term interests
Strategy for Addressing Climate Change Risks
Northern Trust understands that the long-term viability of our business and our clients is tied to the health and well-being of our planet. We therefore commit to protecting the environment and mitigating any negative environmental impacts from our operations.
We align our business with the fundamental principle of sustainability: meeting the needs of the present generation without compromising the abilities of future generations to meet their own needs. We do this by integrating environmental considerations into our company-wide processes, continually improving our business practices and delivering tangible, positive results related to the environment. Northern Trust's Workplace Services manages our real estate portfolio, procurement and facilities services with the objective of reducing the negative environmental impacts of our supply chain. We use energy to power our data centers and facilities, the majority of which are in North America. As a result, the bulk of our greenhouse gas (GHG) emissions come from our North American operations. Since we began tracking our carbon footprint (comprised of the carbon dioxide equivalent of all GHGs produced from our operations), we have improved our data collection processes and calculation methodologies to align with the GHG Protocol.
We commit to mitigating any negative environmental impacts from our operations
Working closely with our building managers, Northern Trust follows the environmentally friendly building strategies and practices outlined by the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED) program, which has awarded our offices in North America and APAC one LEED platinum certification, six gold certifications, two silver certifications and one general certification. In addition, we use reliable and sophisticated tracking programs to monitor and manage our environmental performance and calculate our annual carbon footprint.
We recognize that the
long-term viability of our business is tied to the
health of our planet
After completing a comprehensive emissions study in 2017 that formed our baseline, we set a goal to reduce our total Scope 1, Scope 2 (using the market-based approach) and Scope 3 carbon emissions by 25 percent per full-time employee (FTE) from 2015 levels by 2020. As of December 31, 2020, we have reduced our emissions by more than 62 percent since our 2015 baseline and our energy consumption by over 44 percent. 2020 was an unprecedented time due to the impact of COVID-19. With the vast majority of our staff working from home and significantly reduced business travel, we estimate that the impact of COVID-19 on our global emissions equates to approximately 25 percent reduction. We supplied over 12 percent of our portfolio with a renewable energy electricity supply, with further plans to expand this. We are currently developing our new carbon reduction target and expect to release it by the end of 2021. Meanwhile, we are continuing to reduce our carbon emissions as well as expanding the number of types of emission on which we report (i.e., water and waste emissions).
Water and Waste
In 2020, we began to gather data on the water consumption and waste of our buildings. In 2020, 36 percent of our portfolio buildings were able to provide water-use data, representing 104 metric tons of carbon dioxide equivalent (MtonCO2e)/year. Fifty percent of our portfolio buildings provided waste data, representing 3059 MtonCO2e/year. With this baseline, we expect to be able to report on our reduction performance going forward.
Non-Governmental Organizations and Advocacy Groups
Collaboration with non-governmental organizations (NGOs) and advocacy groups allows us to maintain transparency and hold ourselves accountable to our environmental sustainability practices. Northern Trust and our surrounding communities benefit when we publicly report our environmental footprint, such as our GHG emissions, energy use and the risks and opportunities associated with climate change under the supervision and guidelines of reputable third-party organizations. By joining communities of investors who hold the health of our planet in high regard, Northern Trust strives to effect positive change to our environment. The NGOs with which we collaborate include the U.S. Green Building Council, CDP, and the Institutional Investors Group on Climate Change.
The Sustainability Network
The Sustainability Network, Northern Trust’s global employee environmental engagement program, is aimed at increasing awareness of sustainability issues, promoting best practices and unifying environmentally focused business operations. This program conducts celebrations around Earth Hour and Earth Day and facilitates volunteering in local communities. Limited by the unusual circumstances of 2020, it embraced the work-from-home mandates by digitally delivering environmental messages, hosting webinars and celebrating Earth Day through video events. The group also established a “Science Club” newsletter featuring environmental- and science-based educational experiments that employees and their children could conduct at home.
Local Communities
Northern Trust functions as a global citizen whose commitment to building a healthy, sustainable environment involves deep regard for our surrounding communities. We understand our footprint affects the larger ecological system and the lives of community members, and we believe in the power of community-based actions to effect positive change for the good of our planet. Northern Trust commits an array of resources, including capital support and employee volunteerism, to local initiatives and organizations focused on environmental awareness and protection.
Procurement
As detailed in our Supplier Code of Conduct, Global Procurement Policy and Vendor Management Practice Standards, Northern Trust expects our providers to conduct business in an ethical, legal and socially responsible manner.
We regularly review vendors' adherence to our policies and pursue corrective measures when necessary. We use the U.S. Office of Foreign Assets Control to screen each vendor to ensure compliance with all economic and trade sanctions. Northern Trust is committed to integrating ethical, social and environmental factors into our global procurement policy.
Aspects of our global procurement program include:
- Requiring any vendor providing goods and/or services outside of the U.S. to complete an anti-bribery questionnaire.
- Requiring vendors to obey the laws of the country of manufacture, sale, and distribution.
- Promoting a vendor management practice standard that assesses risk, monitors performance, and promotes continuous improvement activities.
Our approach to vendor management ensures we establish an appropriate level of oversight and structure with our vendors
This process maximizes relationships with vendors resulting in ongoing risk mitigation and value delivery. We continue to invest in and review new vendor management techniques and processes that will increase coverage to additional supply categories.
The goals of Northern Trust’s vendor management
program are to:
- Provide and implement the process to monitor and manage vendors.
- Ensure consistency and compliance with regulatory guidance.
- Instill a continuous improvement philosophy into the vendor relationship.
- Ensure compliance with contractual terms and conditions.
The vendor management program process includes:
- Using vendor segmentation.
- Applying a governance model appropriate for the vendor's designated segment.
- Administering jointly developed key performance indicators.
- Developing and implementing a vendor management plan.
- Assigning vendor managers the responsibility for specific activities required by the segmentation.
- Monitoring and reporting on the status of open vendor issues.
Supplier Diversity
Supplier diversity is an essential component of a world-class, global procurement organization. How and with whom we do business reflects our commitment to developing and supporting diverse business owners. Diverse suppliers contribute to our success, foster increased competition and innovation and enhance our ability to provide clients with excellence in service.
Northern Trust collaborates with several organizations to encourage the economic development of our diverse vendors, including the National Minority Supplier Development Council, the Chicago Minority Supplier Development Council, the Women's Business Development Center, Chicago United, Financial Services Roundtable for Supplier Diversity, Disability:IN and the LGBT Chamber of Commerce of Illinois.
Our Supplier Diversity Program engages with
companies that provide goods, software, and
services to Northern Trust.
We strive to:
• Engage with certified and qualified diverse businesses.
• Identify and onboard vendors who bring diversity in thinking, skill sets, and approaches.
• Stimulate and promote economic development in the communities in which we work.
• Monitor the key characteristics and commitment of all vendors who work with Northern Trust.
• Engage with minority, women, veteran, LGBTQ+, disabled, service-disabled veteran and small business enterprises.
Northern Trust’s Supplier Diversity Program includes the measurement and reporting of key aspects of diversity including: the composition of the company’s ownership, leadership, and employees; its philanthropic activities; and its own supplier diversity program.
In addition, our program requires our suppliers to also do business with diverse suppliers and we track and measure this activity.
Northern Trust's supplier diversity program is led by a senior-level manager, the Director of Supplier Diversity. In 2020, we spent more than $130 million with minority, women, veteran, LGBTQ+, disabled and small business enterprises. Northern Trust continues to bring diverse suppliers into our supply chain.
Sustainable Products and Services
We believe the long-term financial success of our various stakeholders is dependent upon a healthy global environment, a stable society, and well-functioning, well-governed companies.
We view the integration of ESG factors as a long-term aspect of Northern Trust’s
fiduciary heritage.
Our asset servicing business is committed to supporting the efforts of our institutional clients to meet sustainable investment goals by giving them access to ESG insights, comprehensive reporting tools and risk exposure analytics capabilities such as carbon footprint analysis. With the knowledge gained through these tools, our clients can engage with asset managers and stakeholders around the evolving environmental impacts of their investment portfolios, manage potential stakeholder concerns and gain greater awareness of financial and reputational risks.
We also encourage our clients to achieve greater transparency and satisfy ever-increasing regulatory requirements by integrating the resulting analytics into their disclosures and other publications.
To support our clients’ growing ESG oversight and governance programs, we offer a suite of solutions.
ESG Insights
Launched in 2020, this service offers a quantitative approach to measuring ESG factors. It provides clients a summary ESG profile of their investments with more detailed reporting that includes carbon footprint analysis.
Post-Trade Compliance Monitoring
Through this service, clients can track the compliance of individual investment managers or programs to their ESG-focused mandates. The service identifies breaches to a client’s mandated instructions by flagging investments in companies that derive revenue from restricted areas. We recently enhanced this service to provide greater flexibility for clients with more detailed monitoring requirements, such as custom revenue thresholds.
Performance Measurement
This service enables clients to evaluate the relative performance impact of ESG factors on their portfolios, programs and policy statements. It supports a broad range of ESG-focused benchmarks that allow for relative comparisons of securities down to the most granular level.
Throughout 2021, we expect to continue to focus on expanding our portfolio measurement and monitoring capabilities in relation to climate risk. We are further integrating ESG data into our analytics and reporting platforms to help clients gauge the impact of their ESG strategies on overall investment performance and effectively monitor enhanced investment restrictions. We are also developing additional support to address a growing range of regulatory and industry reporting frameworks that are impacting clients around the world.
Our asset management business firmly believes the appropriate management of ESG factors can create long-term shareholder value. When managed well, material ESG factors can position a company for success. When managed poorly, they can lead to negative externalities that can result in reputational and financial risk.
Through our long-term commitment to social, environmental and financial integrity, we have developed in-house, specialized expertise. Our dedicated resources are focused on the integration of sustainable investing factors across our investment processes.
Approaches to Sustainability
By incorporating a range of available tools and approaches to holistic portfolio construction and stewardship, our capabilities encompass a wide spectrum of sustainable approaches, from exclusionary to integration to thematic. For more than 30 years, we have been managing portfolios in this style, and have seen this space evolve significantly. We are committed to evolving and advancing the innovative capabilities available to the marketplace.
Our capabilities encompass a wide spectrum of sustainable approaches, from exclusionary to integration to thematic.
Northern Trust offers investment capabilities with sustainable objectives in equity, fixed income, alternatives and listed real assets. The approach and objective of a sustainable investing strategy is multi-dimensional and may apply differently to different asset classes and in different geographies.
While sustainability factors are broad in nature, our investment framework focuses on certain key issues and approaches. It is our view, for example, that the way a company manages diversity can either create value or stifle it. Appropriate management of climate risk distinguishes industry leaders from industry laggards and affects stakeholders broadly. In this effort, we are guided by international norms and standards including the OECD guidelines, the UN Global Compact, and the ILO Core Conventions.
New ESG Scoring Methodology
In 2020, our asset management research team developed a new proprietary ESG scoring methodology that enables the integration of sustainability into investment portfolios in a more transparent and focused manner. It is built on a robust evaluation of financially material sustainability issues relevant to each industry, focusing on the specific risks likely to impact a company’s financial performance, integrating the materiality standards from the Sustainability Accounting Standards Board with aspects of the forward-looking recommendations proposed by Taskforce for Climate-Related Financial Disclosures.
In 2020, our asset management research team developed a new proprietary ESG scoring methodology that enables the integration of sustainability into investment portfolios in a more transparent and focused manner.
Stewardship
Responsible stewardship is a critical step in ensuring that the capital entrusted to us is working on behalf of our clients to create value and mitigate risks as we work towards financial, environmental and social sustainability.
Serving as an investment steward for client assets is a privilege, and we appreciate the significant responsibility that comes with it. As a global investor, we have the power to identify opportunities for positive change. One way we do so is to encourage companies to commit to business practices that improve the environment, society and corporate governance, as we believe sustainable practices are key for long-term business success.
To influence companies to adopt more sustainable practices,
we prioritize our engagements with purpose.
To influence companies to adopt more sustainable practices, we prioritize our engagements with purpose. That is, we identify the areas that represent the most significant threats to sustainability and where we can make the most difference.
In this time of public health crisis, we are seeing compelling signals that strategies that integrate material ESG analytics are in many cases demonstrating effective downside risk management. The findings from this market environment are providing us with additional evidence and insights into the material nature of ESG issues and will form a basis for future engagements.
We encourage our clients to integrate ESG analytics into their disclosures
and other publications
The investment teams of our Wealth Management business continue to experience a significant increase in interest from clients in sustainable/ESG investments. Northern Trust’s deep and extensive history in this space has been a differentiating factor that has led several new clients to choose Northern Trust.
We recently began working with a leading
ESG data provider to allow for analysis of
ESG products or entire client portfolios.
This data will enhance the experience for our
clients by allowing them to better understand
their exposure to key ESG metrics and make changes to align with their values.
We also developed a process through which
clients’ interest in ESG investing is documented, ensuring they are able to implement sustainable investment strategies in their trust accounts and IRAs. We also launched ESG model portfolios
that allow for client portfolios to be invested in
ESG strategies while aligning with Northern Trust’s strategic and tactical asset allocation recommendations. Northern Trust continuously evaluates our Wealth Management product offerings to ensure our solutions fulfill clients ESG needs and meet Northern Trust’s high expectations for investment performance.
Selected Memberships
and Initiatives
To promote our CSR priorities locally and globally, Northern Trust participates in several groups and initiatives. Read more about the organizations we support.
THE UNITED NATIONS ENVIRONMENTAL PROGRAMME - FINANCE INITIATIVE (UNEP Fl)
The UNEP Fl is a global partnership between UNEP and the financial sector. More than 200 institutions, including banks, insurers and fund managers, work with UNEP to understand the impacts of environmental and social considerations on financial performance.
UNITED NATIONS PRINCIPLES FOR RESPONSIBLE INVESTING (UNPRI)
The UNPRI Initiative is an international network of investors working together to put the six Principles for Responsible Investment into practice. Its goal is to understand the implications of sustainability for investors and support signatories to incorporate these issues into their investment decision-making and ownership practices.
ASSOCIATION OF CORPORATE CITIZENSHIP PROFESSIONALS (ACCP)
The ACCP is a membership organization open to for-profit companies or corporate-funded foundations that have corporate responsibility or corporate citizenship programs.
INSTITUTIONAL INVESTORS GROUP ON CLIMATE CHANGE (IIGCC)
The IIGCC is a forum for investors to collaborate on climate change. It provides investors with a collaborative platform to encourage public policies, investment practices and corporate behaviors that address long-term risks and opportunities associated with climate change.
CEO ACTION FOR DIVERSITY AND INCLUSION
CEO Action for Diversity and Inclusion is the largest CEO-driven business commitment to advance diversity and inclusion in the workplace. All signatories have committed to taking steps to increase diversity and foster inclusion within their respective organizations and the larger business community.
CLIMATE ACTION 100+
Climate Action 100+ is an investor initiative to ensure the world's largest corporate GHG emitters take necessary action on climate change. The companies include 100 "systemically important emitters" that are responsible for two-thirds of annual global industrial emissions, alongside more than 60 others that have a significant opportunity to drive the clean energy transition.
U.K. WOMEN IN FINANCE CHARTER
The charter reflects the U.K. government's aspiration to ensure gender balance at all levels across financial services firms. A balanced workforce has positive effects for customers, profitability and workplace culture, and is increasingly attractive for investors.
NATIONAL MINORITY SUPPLIER DEVELOPMENT COUNCIL
The National Minority Supplier Development Council (NMSDC) advances business opportunities for certified minority business enterprises and connects them to corporate members. The NMSDC matches more than 12,000 certified minority-owned businesses to their network of corporate members who wish to purchase their products, services and solutions.
CHICAGO MINORITY SUPPLIER DEVELOPMENT COUNCIL
The mission of Chicago Minority Supplier Development Council (CMSDC) is to certify, develop, connect and advocate for minority suppliers as the premier supplier development organization creating sustainable and profitable relationships between minority business enterprises and major buying organizations.
WOMEN'S BUSINESS DEVELOPMENT CENTER
The mission of the Women's Business Development Center (WBDC) is to support and accelerate business development and growth, targeting women and serving all diverse business owners, in order to strengthen their participation in-and impact on-the economy.
CHICAGO UNITED
Chicago United's mission is to achieve parity in economic opportunity for people of color by advancing multiracial leadership in corporate governance, executive level management and business diversity.
FINANCIAL SERVICES ROUNDTABLE FOR SUPPLIER DIVERSITY
The Financial Services Roundtable for Supplier Diversity (FSRSD) is a 501(c)(6) organization comprised of regional, national and global financial services companies with a formalized supplier diversity initiative.
DISABILITY:IN CHICAGOLAND
Disability:IN Chicagoland is the only business-to-business association in Illinois that promotes disability inclusion in the workplace, marketplace and supply chain. Disability:IN Chicagoland is the local affiliate of Disability:IN.
LGBT CHAMBER OF COMMERCE OF ILLINOIS
The mission of LGBT Chamber of Commerce of Illinois (LGBTCC) is to promote economic opportunities for the LGBT community by being an advocate and resource for all member businesses that encourage equality. The LGBTCC is a local affiliate of the National Gay and Lesbian Chamber of Commerce (NGLCC).
Sustainability Accounting Standards Board (SASB) Index
For the Year Ended December 31, 2020
This report has been prepared in furtherance of our ongoing commitment to transparency for our various stakeholder groups. Our stakeholders may use this report to gauge Northern Trust’s progress on achieving our goals pertaining to Environmental, Social and Governance (ESG) matters. This report has been prepared in accordance with the Sustainability Accounting Standards Board's disclosures for Asset Management and Custody Activities. As such, the information provided in this response is primarily representative of Northern Trust’s Asset Management (NTAM) business. Additional information may exist with respect to Northern Trust’s other lines of business.
Transparent Information and Fair Advice for Customers
FN-AC-270a.1 - Number and percentage of covered employees with a record of investment-related investigations, consumer-initiated complaints, private civil litigations or other regulatory proceedings
No Northern Trust covered employees were the subjects of new complaints or proceedings of this type during the reporting period.
FN-AC-270a.2 - Total amount of monetary losses as a result of legal proceedings associated with marketing and communication of financial product-related information to new and returning customers
Please refer to Northern Trust’s periodic reports under Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended (Exchange Act), and other filings made with the U.S. Securities and Exchange Commission (SEC) for a description of material legal proceedings, if any.
FN-AC-270a.3 - Description of approach to informing customers about products and services
We believe in the importance of fair and industry-consistent disclosure of investment performance results, and have thus adopted the CFA Institute's Global Investment Performance Standards which guide how we regularly communicate investment performance results and risk statistics to clients and prospects.
Our client-facing teams are trained to uphold and comply with the standards, laws, rules and regulations surrounding client and prospect communication required of the various legal entities through which we operate. These professionals, together with our investment strategists, analysts and portfolio managers, are responsible for regular communication with clients and prospects.
We use a wide range of media to communicate product and service information with our broad client and prospect set. Information may be provided through strategy and fund fact sheets, websites, blogs, webinars, and conferences. For our fund ranges, audited annual reports are made available to provide transparency as to fund holdings, transactions and valuation. Clients also receive periodic statements that relay their specific performance results, portfolio characteristics and risk statistics.
To engage with prospective clients, we may leverage tailored presentation materials that include investment strategy objectives, describe the investment process and relay historical performance outcomes with risk statistics. All standard marketing materials and client-specific presentations are subject to internal policies, procedures and review by internal compliance professionals.
Northern Trust Asset Management's approach to communication is aimed at transparency and is tailored to each client type and the jurisdictional requirements of our clients’ locations. Additional information about Northern Trust Asset Management products and services can be found through www.northerntrust.com as well as related offering-specific websites which are customized to location and investor type.
Balanced and transparent communication are at the center of Northern Trust's philosophy on client engagement. To this end, a Code of Ethics has been developed which employees agree to and receive regular training on. Northern Trust Asset Management's Code of Ethics is designed to reinforce our reputation for integrity by placing the interests of clients first, while avoiding even the appearance of impropriety and to ensure compliance with federal securities laws. The Code of Ethics sets forth procedures and limitations that govern the personal securities transactions of our employees in accounts held in their own names as well as accounts in which they have indirect ownership.
The Code of Ethics establishes general principles governing the conduct of all persons covered by the Code in connection with the Northern Trust Asset Management's investment advisory services, as well as procedures to ensure compliance with these general principles. These principles emphasize the fiduciary duties to clients and the obligation of persons covered under the Code of Ethics to uphold the following:
- The duty at all times to place the interests of clients first;
- The requirement that all personal securities transactions be conducted in such a manner as to be consistent with the Code and to seek to avoid, manage or mitigate any actual or potential conflict of interest or any abuse of a person’s position of trust and responsibility;
- The principle that no person should take inappropriate advantage of their positions;
- The fiduciary principle that information concerning the identity of security holdings and financial circumstances of clients is confidential;
- The principle that independence in the investment decision-making process is paramount;
- The duty to preserve Northern Trust’s reputation for honesty, integrity and professionalism; and
- In personal securities investing, individuals should follow a philosophy of investment rather than trading.
Northern Trust has developed policies and procedures for managing, mitigating and disclosing actual or potential conflicts of interest related to the services provided. The underlying principal of each of these polices and Northern Trust Asset Management's Code of Ethics is to place the interests of clients first. Form ADV provides information about SEC-registered investment advisers and their business, ownership, clients, employees, business practices, affiliations, conflicts of interest, disciplinary events, advisory services, and fees. The Form ADV for each of Northern Trust's investment advisers registered with the SEC is available on the SEC’s Investment Adviser Public Disclosure (IAPD) website.
Employee Diversity & Inclusion
FN-AC-330a.1 - Percentage of gender and racial/ethnic group representation for (1) executive management, (2) non-executive management, (3) professionals, and (4) all other employees
Incorporation of Environmental, Social, and Governance Factors in Investment Management & Advisory
FN-AC-410a.1 - Amount of assets under management, by asset class, that employ integration of environmental, social, and governance (ESG) issues, sustainability themed investing, and screening
We have been managing portfolios integrating sustainability considerations since 1988, when our first index equity ESG strategy was launched in the form of negative screening. Since that time, our sustainable investing assets have grown organically and as of December 31, 2020 have reached US$128.2 billion in assets under management. We have provided the following chart breakdown by asset class and approach:
FN-AC-410a.2 - Description of approach to incorporation of environmental, social, and governance (ESG) factors in investment and/or wealth management processes and strategies
At Northern Trust, we have been managing portfolios in this style for more than 30 years, during which time this space has evolved significantly. We are committed to evolving and advancing the innovative, compelling capabilities available to the marketplace. Northern Trust offers investment capabilities with sustainable objectives in equity, fixed income, alternatives and listed real assets. The approach and objective of a sustainable investing strategy is multi-dimensional, and may apply differently to different asset classes and in different geographies. While sustainability factors may be broad in nature, our view focuses on certain key issues and approaches in our investment framework. It is our view, for example, that the way a company manages diversity can either create value or stifle it. Appropriate management of climate risk distinguishes industry leaders from industry laggards and affects stakeholders broadly. In this effort we are guided by international norms and standards, including the Organization for Economic Co-operation and Development (OECD) guidelines, the UN Global Compact, and the International Labour Organization (ILO) Core Conventions. Responsible stewardship is a critical step in ensuring that the capital entrusted to us is working on behalf of our clients to create value and mitigate risks as we work towards financial, environmental and social sustainability.
Northern Trust Asset Management has the ability to integrate ESG data and indicators into passive and quantitative active investment strategies. We employ a variety of ESG strategies across the sustainable investing spectrum, from exclusionary, to integration to thematic.
Our Northern Trust Custom ESG suite of exclusions employed throughout selected passive and active strategies across our firm apply a customized criteria that address broad ESG issues to create the eligible ESG universe of securities from which to begin the portfolio construction process. The Northern Trust Custom ESG criteria screens out companies with significant involvement in controversial business lines, specifically tobacco, civilian firearms, controversial weapons, conventional weapons, and thermal coal. Additionally we identify and remove any company found to have violated international norms such as the UN Global Compact or to have generally shown poor management of ESG risks and opportunities.
The NT World Green Transition, Index Fund, an example of our passive platform designed by Northern Trust Asset Management, uses thematic approach that integrates the core investment objectives of the MSCI Custom ESG Climate Series A Indices (Developed and Emerging Markets). The strategy combines the core of our Custom ESG screening process with a thoughtful approach to fossil fuel divestment and a range of positive tilts which provide opportunities to benefit from the shift to a low-carbon economy. We believe this sets a firm governance background and screens social and governance issues before allowing further exclusions to the universe. The strategy divests from fossil fuels with Energy Applications and further reduces its carbon intensity, while actively tilting towards companies that provide solutions for the transition to a low-carbon economy. The result is a climate-aware, passive solution which provides a hedge against systematic climate change risks.
Our approach to actively managed strategies is to focus on quantitative investing techniques in an attempt to efficiently capture factor exposures that we feel are compensated over full market cycles, while mitigating undesired risks. An example from our asset management practice is our Quality ESG (QESG) strategy. This strategy incorporates financial and ESG factors into our equity selection process in several ways. First, we remove companies with significant involvement in controversial business lines, specifically tobacco, civilian firearms, controversial weapons, conventional weapons, and thermal coal using the Northern Trust Custom ESG suite of exclusions. Additionally, in this strategy, we identify and remove any company found to have violated international norms such as the UN Global Compact or to have generally shown poor management of ESG risks and opportunities. Focusing on quality, our strategy then ranks companies by our quality score and removes those in the lowest 20% of each sector. With our eligible securities, our portfolio is then optimized to have a larger weight in securities with higher ESG ratings, and securities with higher quality scores, with constraints based on sector and security to balance risk, return and transaction costs. Additionally, our optimization takes into account company-specific carbon data in order to achieve our targeted reduction of the portfolio’s carbon footprint and to lean the portfolio toward companies that may benefit from a transition to a low-carbon economy. We target a carbon footprint reduction in both carbon emissions and carbon reserves of at least 50% relative to the benchmark and have historically realized a 60% emissions reduction and an 80% reduction in reserves. Carbon risk is an important sub-component of broader climate change risks and is therefore an additional point of emphasis for this strategy during the equity selection process. Following these steps of the investment process significantly helps identify those companies that not only have strong ESG practices but are also financially well-positioned.
In 2021, we launched our proprietary scoring model for assessing material ESG risks. The Northern Trust ESG Vector Score is a proprietary analytical measurement which assesses material sustainability performance for issuers in the public equity and corporate fixed income asset classes. We developed the Northern Trust ESG Vector Score for use in constructing and managing investment portfolios and stewardship activities. The Vector Score focuses on the magnitude and direction of key ESG-related business issues likely to have a financial impact on companies and hence a portfolio’s performance. Our innovative approach combines two leading sustainability reporting frameworks – the Sustainability Accounting Standards Board’s (SASB) Standards, which are industry-specific, financial materiality standards, and the thematic structure of the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations. Our multi-dimensional score is unique in its application of TCFD’s anticipatory framework on governance, strategy, and risk management beyond climate issues – to all ESG risks across the entire SASB materiality map, resulting in a comprehensive assessment. The design enables more purposeful and transparent integration of ESG considerations into investment processes, addressing the need for a consistent way to measure and report on ESG issues.
FN-AC-410a.3 - Description of proxy voting and investee engagement policies and procedures
Northern Trust has a suite of policies and procedures to help frame our active ownership activities. They include our Sustainable Investing Philosophy; Proxy Voting Policies, Procedures and Guidelines; and Engagement Policy.
Our Engagement Policy covers both our passive and quantitative equity pooled funds. Whenever we see significant risk coming from an investee company’s behavior, we strive to make sure it is addressed by engagement – either through third-party arrangements, or directly by a Northern Trust employee. If the issue is not resolved, we may consider divesting from such securities, except when they are part of index strategies, or when investment strategy does not permit us to do so.
We believe it is our duty to regularly engage with companies in our portfolios, and our experience shows that engagement and proxy voting has the biggest impact when they are used in combination. Our proactive dialogue with companies, reinforced by our voting power, encourages companies to improve practices that strengthen sustainability.
As a major index investor representing permanent capital in more than 10,000 companies globally, we see our voting at shareholder meetings as one of the best ways Northern Trust can communicate its views to companies on behalf of our clients. Academic research shows that corporate management pays attention to who is voting and how, and they are willing to negotiate on shareholder resolutions that have the backing of institutional investors. Our proxy voting policies, procedures and guidelines have a considerate and thoughtful approach to ESG issues including human rights, diversity and equal employment opportunity, and climate change. The fundamental precept followed by Northern Trust in voting proxies is to ensure that the manner in which shares are voted is in the best interest of clients / beneficiaries and will aim to maximize shareholder value.
We support shareholder resolutions when we believe conversations with companies have not led to sufficient progress on issues, especially those we view as priorities. While supporting shareholder resolutions is an important way to communicate our views, many resolutions tend to be non-binding and hold little sway with management. We find that companies are more likely to take our concerns seriously when we vote against directors who lead board committees such as those responsible for ESG risks or compensation. In particular, we vote against directors when our concerns are not acknowledged or there is little progress in addressing our concerns.
We have entered into an agreement with an independent third party, Institutional Shareholder Services (ISS), to implement our global proxy voting policy and guidelines through proxy voting. Oversight of decision making on ballots is provided by the Northern Trust Proxy Voting Committee.
Additionally, Northern Trust has entered into an agreement with Hermes Equity Ownership Services (Hermes EOS) to provide supplemental monitoring and engagement services for select portfolios. Details of the covered portfolios and approach used by Hermes EOS are described in our Engagement Policy.
FN-AC-510a.1 - Total amount of monetary losses as a result of legal proceedings associated with fraud, insider trading, anti-trust, anti-competitive behavior, market manipulation, malpractice, or other related financial industry laws or regulations
Please refer to Northern Trust’s periodic reports under Section 13 or Section 15(d) of the Exchange Act and other filings made with the SEC for a description of material legal proceedings. During 2020, Northern Trust experienced no material losses in the categories listed above.
FN-AC-510a.2 - Description of whistleblower policies and procedures
Northern Trust's Standards of Conduct Policy requires employees to report known or suspected legal or conduct violations and provides several points of contact including Human Resources, the Chief Compliance and Ethics Officer, the Corporate Secretary, and the Equal Employment Opportunity Officer. Employees can also access a confidential hotline which is available 24 hours a day, 7 days a week. Regional hotline numbers are in the Standards of Conduct Policy as well as the corporate intranet page. Northern Trust does not tolerate any type of retaliation against employees who make a report. This includes discrimination in the terms and conditions of employment, or other adverse action of any kind solely as a result of making a report. Any employee who violates this non-retaliation policy will be subject to disciplinary action, up to and including termination. The hotline is managed by an independent third party.
Northern Trust complies with applicable whistleblower regulations including the U.S. Sarbanes Oxley Act, and the U.S. Consumer Financial Protection Act.
FN-AC-550a.1 - Percentage of open-end fund assets under management by category of liquidity classification
Northern Trust is declining to respond to this disclosure. Northern Trust manages liquidity at the individual fund level and the assets in one fund may not be used to meet redemptions in another fund. As a result, aggregate liquidity classifications across funds would not provide meaningful insight as to how liquidity is managed at the fund level. In addition, in 2018, the SEC voted to adopt “Investment Company Liquidity Disclosure,” a final rule amending Rule 22e-4 of the Investment Company Act of 1940. In accordance with the Investment Company Liquidity Disclosure rule, the SEC rescinded the requirement that open-end mutual funds registered under the Investment Company Act of 1940 publicly disclose aggregate liquidity classification information at the fund level. The SEC explained that “the subjectivity of the [Rule 22e-4] classification process when applied to this public disclosure concerns us for several specific reasons.” The reasons given by the SEC included, among others, that the data “may pose a significant risk of confusing and misleading investors.” Accordingly, Northern Trust is omitting a response to this item.
FN-AC-550a.2 - Description of approach to incorporation of liquidity risk management programs into portfolio strategy and redemption risk management
Portfolio managers have the primary responsibility for liquidity risk management within their respective portfolios. Risk Management provides independent oversight of Northern Trust Asset Management funds. The Credit and Liquidity Risk Management Committee (CLRMC) is responsible for overseeing Northern Trust Asset Management's liquidity risk management program. The CLRMC meets monthly and performs regular reviews of fund liquidity profiles. This includes reviews of highly liquid and illiquid levels within each fund, flow history, shareholder concentration levels, and whether a highly liquid minimum is needed for each fund.
Components of the Liquidity Risk Program
- Northern Trust Asset Management’s liquidity risk management program is structured around assets, liabilities, and tools, which is consistent with the SEC rule.
Assets
- The liquidity of the underlying assets of a fund is analyzed in relation to the potential cash flows to determine the timeframe needed to convert assets into cash to meet redemptions, when required.
- Current asset liquidity analysis includes reviewing items such as investment strategy, holdings diversification, credit ratings, and maturity profiles (for fixed income funds), position size as percent of daily trading volume (for equities), trade execution data, fund turnover rates, cash levels, stress tests, and asset composition.
Liabilities
- Liabilities drive liquidity management as the ability to meet redemptions is the essence of liquidity risk for an asset manager.
- Current liability analysis includes items such as fund holder concentration, fund holder type, monitoring of fund flows, analysis on fund subscription and redemption history, average 3-day redemptions, and maximum historical redemption levels.
Tools
- Furthermore, Northern Trust Asset Management must have sufficient tools (sources of liquidity, stress scenarios, and playbooks) to bridge potential liquidity gaps between assets and liabilities.
- A line of credit shared by the mutual fund complex is the primary tool that can be utilized, when needed.
- Current liquidity analysis includes reviewing line of credit usage and history, fund overdrafts, running liquidity stress scenario exercises, and developing playbooks for potential liquidity situations.
Swing Pricing
Swing pricing is an anti-dilution mechanism which protects fund shareholders by countering the dilution effect of subscription and redemption activity. Northern Trust Asset Management employs swing pricing for 14 Netherlands-domiciled Undertakings for the Collective Investment in Transferable Securities (UCITS) funds and 6 Dublin domiciled UCITS funds. Swing factors are reviewed and approved by the UCITS Fund Board Investment Committee.
FN-AC-550a.3 - Total exposure to securities financing transactions
Northern Trust lends securities owned by clients to borrowers who are reviewed and approved by the Northern Trust Capital Markets Credit Committee, as part of its securities custody activities and at the direction of its clients. In connection with these activities, Northern Trust has issued indemnifications to certain clients against certain losses that are a direct result of a borrower’s failure to return securities when due, should the value of such securities exceed the value of the collateral required to be posted. Borrowers are required to collateralize fully securities received with cash or marketable securities. As securities are loaned, collateral is maintained at a minimum 100% of the fair value of the securities plus accrued interest. The collateral is revalued on a daily basis. The amount of securities loaned as of December 31, 2020 and 2019, subject to indemnification was $157.5 billion and $138.1 billion, respectively.
Cash and other assets deposited by investment firms as collateral for securities borrowed from custody clients are managed by Northern Trust and are included in assets under custody and under management. This securities lending collateral totaled $186.9 billion and $163.0 billion at December 31, 2020 and 2019, respectively.
FN-AC-550a.4 - Net exposure to written credit derivatives
Northern Trust has no exposure related to written credit derivatives.
FN- AC-000.A - Total registered and total unregistered assets under management (AUM)
$1.4 trillion Assets Under Management as of December 31, 2020
FN-AC-000.B - Total assets under custody and supervision
$11.3 trillion Assets Under Custody as of December 31, 2020
