Northern Trust Asset Management (NTAM) introduced today the Northern Trust ESG Vector ScoreTM, a measurement that assesses publicly traded companies in the context of financially relevant environmental, social and governance (ESG) related criteria that could impact their operating performance. It can be used in constructing and managing investment portfolios and stewardship activities.
The ESG 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. It provides a consistent, transparent methodology to gain greater clarity when building and managing sustainable portfolios.
“The Score aligns with the firm’s philosophy that investors should be compensated for the risks they take – in all market environments and any investment strategy. We consider this an essential tool to measure how a company is managing its ESG business risks,” NTAM president Shundrawn Thomas said.
NTAM’s industry-first approach marries two leading sustainability disclosure standards and frameworks – the Sustainability Accounting Standards Board’s (SASB) Standards, which are industry-specific sustainability disclosure standards focused on financial materiality, and the thematic structure of the Task Force on Climate-related Financial Disclosures’ (TCFD) Recommendations. 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 investments.
As demand for ESG-driven investing has accelerated, so too has the number of data providers – each with varying information, reporting components and levels of transparency. This has created significant confusion and subjectivity for investors to assess the magnitude and direction of individual companies’ ESG-related issues. Concerned by the numerous ESG methodologies and data sets available, investors have expressed the need for a more transparent and disciplined framework that focuses only on the ESG-related business issues that could impact the financial condition of a company – and ultimately their portfolio’s investment return.
“What’s unique about Northern Trust’s multi-dimensional score is that we built it by applying TCFD’s anticipatory framework on governance, strategy and risk management – beyond simply climate – to all ESG risks across the SASB Standards, resulting in a comprehensive assessment,” NTAM head of global product Sheri Hawkins said.
“Our ESG Vector Score leverages the practical insights we’ve gained over the past 30 years helping some of the most sophisticated and progressive global investors integrate ESG criteria into their investment portfolios,” Thomas said. “Managing more than $139 billion of ESG assets, we’ve observed firsthand the challenges of navigating the increasing volume of data providers, varying information, and levels of transparency as interest in ESG investing has accelerated. The Score solves this challenge, strengthening our ability to have a clearer picture of a company’s ESG-related business risks that could impact it’s performance.”
The firm’s recently launched ETFs in EMEA incorporate the use of the ESG Vector Score. Further, it plans on integrating the Score into new equity and fixed income ESG investment strategies they are building. This will enable NTAM to offer investors ESG-integrated ‘building blocks’ with a singular, consistent ESG framework. “A full multi-asset suite of products with a consistent sustainability methodology across asset classes is a current gap in the marketplace. The Score marks an important foundational step in filling it,” Hawkins said.
Hawkins further stated that “NTAM plans on using the ESG Vector Score to assist in prioritizing its corporate engagement, thus further aligning our sustainable investment platform and stewardship. This allows us to lead more deliberate engagements, as well as track progress over time with a consistent metric.”
Since ESG reporting and requirements are continually maturing, NTAM designed the ESG Vector Score framework intentionally as open-architecture, allowing for the flexibility of incorporating additional best-in-class data as it becomes available. This will enable it to support multiple data sources and new industry requirements over time.
Source: Northern Trust