Forward-Looking ETFs to Integrate ESG Investing Into Your Core Portfolio

Exchange traded fund investors with a socially responsible investment mindset should consider the impact of current financial performance and a forward-looking directional risk assessment methodology to gauge the environmental, social, and governance impact of an asset’s value over the long term.

In the recent webcast, Simple and Efficient ESG Integration for Your Clients’ Portfolios, Northern Trust Asset Management’s head of product strategy, Crystal McClenthen, and Michael Natale, head of intermediary distribution, highlighted the growing demand for ESG-related investments. Asset managers and services are positioning to take advantage of growing investor demand. As we witness a substantial shift in the perception of ESG-related issues, we see increased demand for ESG investments across all regions of the world.

McClenthen explained that Northern Trust has taken a multidimensional approach to integrating sustainable investing objectives, investment acumen, and stewardship for long-term value creation. Specifically, she highlighted the Northern Trust ESG Vector Score methodology, a measurement that assesses publicly traded companies in the context of financially relevant ESG related criteria that could impact their operating performance. The Northern Trust ESG Vector Score captures the magnitude and direction of a company’s potential ESG-related business risks.

“Aligned with the firm’s philosophy that investors should be compensated for the risks they take, the methodology leverages the firm’s extensive quantitative and sustainable investing experience – capturing both the magnitude and direction of potential ESG-related risks,” McClenthen said.

McClenthen explained that a proliferation of ESG metrics and data providers has created an alphabet soup of ESG ratings metrics. Consequently, investors need a disciplined framework that focuses on ESG-related business issues that could impact a company’s financial condition.

The Northern Trust ESG Vector Score focuses on financially material ESG issues in alignment with NTAM investment philosophy that investors should be adequately compensated for the risks they take. It provides the ability to utilize a consistent framework across all asset classes and support and inform engagement and stewardship activities.

Northern Trust’s FlexShares has recently launched a suite of ETFs that apply this vector score methodology, including the FlexShares ESG & Climate US Large Cap Core Index Fund (FEUS), FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM)FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (FEIG), and FlexShares ESG & Climate High Yield Corporate Core Index Fund (FEHY).

The FlexShares ESG & Climate Suite improves a core experience by consistently delivering consistent portfolio building blocks and integrating an ESG & Climate framework of financially relevant criteria across asset classes, market segments, and geographies. Additionally, the methodology incorporates screening considerations to avoid investing in companies that operate in violation of the UN Global Compact or have business involvement with tobacco, thermal coal, or weapons with additional considerations in emerging markets.

Financial advisors who are interested in learning more about ESG strategies can watch the webcast here on demand.

For more news, information, and strategy, visit the ESG Channel.