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Special Report: Index Managers

Northern Trust’s approach to ESG evolves over the years

Northern Trust Asset Management had the highest concentration of ESG-specific assets under passive management, with 13.7% of the firm's $572.5 billion in internally managed indexed assets incorporating environmental, social and governance factors.

Mamadou-Abou Sarr, director of product development and sustainable investing at Chicago-based NTAM, said ESG screening has evolved over the years. He said today's screens often do not simply mitigate risk through "negative" filtering, which excludes holdings that are vulnerable to ESG-related issues, but that "positive" screens may also be used to broaden sector exposure by finding "the best-in-class companies across every sector, which are displaying the best ESG behavior."

This approach to screening is an "additive" feature in portfolios, he said, rather than a limit. "In speaking with clients across the spectrum, we believe that by selecting the best companies and aligning the beliefs and values of clients with broad market-cap exposure, long-term value for clients can be created," Mr. Sarr said.

Jake Weaver, head of equity index asset management and head of proxy voting and engagement at NTAM, said the firm supports efforts that increase corporate transparency among the companies they hold because responsible governance ultimately drives long-term financial success.

"We don't want to tell a company how to run their business. We want to get more information into shareholders' hands, since our strongest avenue to have an impact on a company is to have an impact from a proxy voting and engagement perspective," he said.

Starting in 2008, the Northern Global Sustainability Index Fund was the first sustainable investing fund offered by NTAM.

Mr. Weaver said NTAM's "experience in the space goes back much further, as it's been managing sustainable investing managed accounts for over 30 years." The firm had $78 billion in sustainable/ESG-specific indexed assets as of June 30.

BNY Mellon Investment Management, New York, had the second-highest ESG concentration, managing 12.1% of the firm's $336.2 billion in passive assets against ESG indexes, or about $40.7 billion.

With 9% of the firm's $2.04 trillion in passively managed assets, State Street Global Advisors, Boston, had the third-highest concentration of ESG-specific indexed assets and the largest dollar amount at more than $183 billion as of June 30.

This is the first year Pensions & Investments has asked managers of indexed assets for the percentage managed against ESG-specific indexes.

No comparable data are available from previous years.