NTAM launches company wide ESG Vector Score
Northern Trust Asset Management (NTAM), with USD1.1 trillion under management and owners of USD18.5 billion FlexShares and issuers in the recent launch of two climate-focused ETFs in the EMEA region, has introduced the Northern Trust ESG Vector Score, a measurement that assesses publicly traded companies in the context of financially relevant ESG criteria that could impact their operating performance.
Designed to be used to construct and manage investment portfolios and stewardship activities, the Score gives a methodology to gain greater clarity when building and managing sustainable portfolios.
Darek Wojnar, Global Head of Funds, ETFs and Managed Accounts and Sheri Hawkins (pictured), Head of Global Product at NTAM, explain that the Score will be used across the company’s investment teams, and will not be available to other members of the investing community as yet.
“We are finding ways that our clients can benefit from seeing how we have developed the scoring methodology,” Hawkins says. “We intend to have the metric available as investment teams construct their portfolios, and for intentional use when they are designing specific ESG-oriented strategies as well.”
NTAM is also leveraging the Score across its stewardship practice, enabling them to shape some of their engagements. “It’s a global stewardship programme which focuses on very specific issues, such as climate change or diversity which give great traction singularly but also through a range of collectives,” Hawkins says. “Now we have consistent tracking of how they are doing.”
NTAM has been driving its engagement in the ESG and sustainable space for several decades. Hawkins is a lifelong Northern Trust partner, while Wojnar has been with the firm for three and a half years, having spent the 25 years of the earlier part of his career in the ETF industry.
Hawkins says: “Our focus in the last few years has been more on analysing ESG and engaging with the data to ensure that we have understood ways to measure sustainability. Our view is that there is an opportunity in the marketplace to analyse how companies have performed through an ESG lens. This has given us the ability to be precise and think about issues that show up for companies, as well as take a forward looking view. The driver has been to get a holistic measure that we can consistently use across our practice.”
Wojnar is responsible for the global FlexShares ETF business at NTAM and all its US registered mutual funds. “I am very excited to partner with my colleagues on the ESG Vector Score as it shows how we respond to clients in this space,” he says. “Clients often ask for our own interpretation of how you consume the information on ESG, and take those inputs available and turn it into something useful.”
Within the US, FlexShares operates through financial advisers and institutional clients, while in EMEA the clients are predominantly institutional, and Wojnar believes that the ESG engagement broadens the firm’s conversations with its client base.
The newly launched EMEA ETFs, the FlexShares Developed Markets Low Volatility Climate ESG ETF (QVFD) and the FlexShares Developed Market High Dividend Climate ESG ETF (QDFD), have achieved seed level assets since launch, Wojnar says, adding that there is a growing pipeline of conversations with institutional clients and aggregator clients across the region.
ESG concerns feature prominently with investor demands, Wojnar explains, using the analogy of his dietary restrictions of no gluten and no onions. “In a restaurant, I could ask for a meal that involves no gluten and no onions but more holistically, I know that my body needs a balanced diet, despite the fact I have to avoid gluten and onions,” he says.
“Many of our clients look to us with the same sort of sense of ‘give me something across all the equities that gives us a sense of how these companies score holistically on material issues that relate to ESG’,” he says.
ETFs offer an excellent route to achieving higher ESG scores as they are transparent, he says. Hawkins confirms that Score is a connection point with leading ESG frameworks in the industry, the Task Force on Climate-related Financial Disclosures (TCFD) and the Sustainability Account Standards Board (SASB).
“There is some familiarity there with industry participants who recognise the power and longevity of these standards,” she says. “They underpin our scoring and give us a great opportunity.”