Northern Trust announced this week that it has enhanced its offering of socially responsible investing solutions for institutional investors. Through an agreement with MSCI, a leading provider of investment research and support tools, Northern Trust's institutional clients will now have access to a wide range of environmental, social, and governance (ESG) research and indices.
“MSCI is delighted to be working with Northern Trust to offer a range of global ESG indices to institutional investor clients,” said Remy Briand, Head of MSCI Index and ESG Research. “MSCI ESG Research’s objective is to provide investors with a broad range of tools to integrate ESG factors across classes according to their specific requirements.”
The agreement with MSCI will allow Northern Trust to provide customized guidance to clients with specific socially responsible investing goals. For example, clients will be able to invest in clean technology companies or in companies that have progressive climate policies. Moreover, clients will be able to avoid investing in companies that sell controversial products such as military weaponry or tobacco.
“By licensing all of the MSCI ESG indices we have full access to the best-in-class research and analysis undertaken by MSCI,” said Mamadou-abou Sarr, Northern Trust's senior product specialist for global index management.
Socially responsible investing is not without its detractors, who point out that socially responsible investment funds often lack diversification and are more expensive because of the fees incurred for screening out undesirable stocks. Moreover, studies differ as to whether socially responsible investment funds outperform traditional funds.
Nevertheless, Northern Trust's expansion of its socially responsible investment solutions parallels an increasing demand among financial professionals for responsible investment options. According to the Social Investment Forum Foundation (SIFF), which has tracked socially responsible investments since 1995, the sector has grown significantly in recent decades.
Socially responsible assets under management grew from $639 billion in 1995 to $3.07 trillion in 2010, representing a 380 percent increase. Socially responsible investment continued to increase during the financial recession even as the overall universe of professionally managed assets remained flat. The SIFF also notes that there were 493 funds incorporating ESG factors in 2010, compared with just 55 in 1995.
Supply for ESG data has matched demand. Companies are increasingly likely to provide ESG data as part of their annual reporting process, and Bloomberg's financial terminals, which reach over 310,000 subscribers, have incorporated ESG data since 2009. Google Finance now lists a company's Carbon Disclosure Rating alongside its profit margins and other key financial indicators.
“Investors are showing increased interest in analyzing their financial portfolios to assess climate-change impact and risk, among other ESG factors,” Connie Lindsey, Northern Trust's Head of Corporate Responsibility. “This gives us an opportunity to provide clients with more advanced capabilities related to ESG analysis.”
Socially responsible investments represent only a small portion of Northern Trust’s business. Of $749.7 billion of total assets under management, Northern Trust manages only about $17 billion in socially-screened portfolios. Still, as demand for socially responsible investment options grows, it is likely that Northern Trust will offer more responsible investment options.
“We are increasingly seeing growth in ESG portfolios as investors become more aware of ESG factors and their possible influence on a corporation’s financial profitability and brand reputation,” said Steve Potter, Northern Trust’s global head of asset management. “Northern Trust has a broad commitment to responsible investing and is dedicated to providing our clients with customizable index solutions that help them meet their ESG objectives.”
With nearly 25 years of experience managing socially responsible portfolios, Northern Trust has long been on the cutting edge of providing responsible investment solutions for its clients. The company's Global Sustainability Index Fund was the first mutual fund to track a global sustainability index and rates.
Harry Stevens is a freelance reporter covering climate change, corporate social responsibility, social enterprise, and sustainable finance. Harry has contributed to several media outlets, including Justmeans, GreenBiz, TriplePundit, and Sustainablog. You can follow Harry on Twitter: @Harry_Stevens