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 their sustainable investment goals and increase disclosure requirements. To do so, we offer a range of data, platform and reporting tools that deliver a wide range of ESG and climate-risk metrics and indicators. With the knowledge gained through these tools, our clients can engage with managers and stakeholders around the evolving sustainability 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: Portfolio Manager Support Focused on the front office and the portfolio management process, this service integrates ESG across the lifecycle of research management, idea generation, portfolio construction and risk management to optimize the entire investment process. This technology-based solution adapts to the portfolio manager’s process, enabling digitization of that process and systematically embedding ESG data and decisioning. The seamless integration of multiple market and internal data sources allows managers to identify and scale their best ideas with an ESG lens. The results are a measurable and repeatable ESG investment process and comprehensive investor and regulatory reporting.
Through our FlexShares ETFs, in 2021 we launched eight funds that utilize the new Northern Trust ESG Vector Score™ in public-equity, investment-grade and high-yield asset classes. The funds span the equity and corporate-fixed-income asset classes, and include a robust climate overlay that targets a meaningful reduction in aggregate carbon emissions relative to respective benchmarks, while also targeting an overall improvement in carbon risk rating.
Investment Risk & Analytical Services: ESG Insights Northern Trust offers a suite of post-trade analytics services providing investors with insight and oversight of key ESG and climate-risk exposure detail.
Throughout 2022, we will work to further integrate ESG data into our analytics and reporting platforms, and to expand data coverage for a multi-asset class investor beyond public assets.
The investment teams of our Wealth Management business continue to experience strong client interest in sustainable/ESG investments. Northern Trust’s deep and extensive history in this space has been a differentiating factor leading several new clients to us.
We continue to see benefits from our relationship with a leading ESG data provider to allow for analysis of ESG products and entire client portfolios. This capability is enhancing the experience for clients by allowing them to better understand their exposure to key ESG opportunities. We’ve also utilized this data in our research process for ESG products to ensure new investments are living up to the expectations of our clients.
In 2021, we offered our first impact-focused private equity funds, allowing an opportunity for clients to invest in leading impact funds from a top private equity manager. We continue to work to provide sustainable investment options for clients as appropriate.
Our ESG model portfolios allow clients 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.
In our Asset Management business, we believe material ESG factors are pre-financial indicators that can affect a company’s future financial viability and clients’ long-term risk-adjusted investment returns. When managed well, they can position a company for success and when mismanaged, they can result in significant risks. Consistent with our view that investors should be compensated for the risks they take, we believe evaluating companies’ performance using ESG criteria enhances our forward-looking view of risks and opportunities. This analysis bolsters our ability to future-proof portfolios and grow clients’ capital. We also believe positive economic and societal change, and financial performance, is best achieved when ESG analysis is combined with active stewardship. We purposely and actively engage with various entities to promote transparency and raise ESG reporting standards with companies in which we invest, the policymakers and regulators with whom we interact, and our vendors and index providers.
We employ a rigorous analytical investment approach, leveraging quantitative and fundamental research and expertise to uncover financially relevant information that can impact a company’s performance. Our sustainability and stewardship specialists work in tandem with investment management teams to raise investment and engagement opportunities. Our actively designed investment solutions purposefully employ a robust four-step investment approach: analyze, measure, monitor and engage.
1. Analyze We seek relevant ESG topics and issues – that are financially material and industry specific – that can shape short- and long-term results. We develop proprietary frameworks of measurable ESG targets by leveraging a mix of leading industry-standard frameworks, such as the Sustainability Accounting Standard Board (SASB) and TCFD, and our more than 30 years of practical ESG portfolio building experience.
2. Measure We believe the companies that put sustainability at the core of their business – those with a strong strategic vision and a deep understanding of the interconnectivity between people, planet and profit – are likely to reap long-term rewards. We use all the tools at our disposal – external, best-in-class ESG data sets, our propriety research and analytics, custom exclusionary screens, and decades of experience – to select the key performance indicators that measure how well publicly traded companies perform on the ESG topics and issues we deem business-relevant and financially material.
3. Monitor We continually assess the sustainability performance of the securities we select for our ESG portfolios. From industry-specific frameworks to our Northern Trust ESG Vector Score™ and custom exclusionary criteria, we develop a comprehensive view that helps us separate the leaders from the laggards and flag the companies that require additional research or targeted engagement.
4. Engage Stewardship is an integral part of our investment process, rooted in our firmly held belief that it is our duty to regularly engage with the companies in our portfolios. That is why we identify long-term risks that have the potential to pose challenges to shareholder value, and we engage on issues of substance that can affect business on many levels. This active ownership approach applies to all companies we invest in – whether the investment strategy is actively managed or indexed. Our disciplined proxy-voting policy and multi-cycle engagement program encourages the companies we invest in to pursue and disclose sustainable business practices that we believe will lead to long-term value.
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