How a new generation of investors is putting the focus on sustainability

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Investment management has been accused of putting profit before planet, but this is changing - fast.

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Marie Dzanis, Head of Asset Management, EMEA at  Northern Trust Asset Management, says that a new generation of investors and advisors is having a profound impact:

“They invest with their values and they worry about things like climate change and how they can have an impact by using their money. If you have products and solutions and ways to engage with them, that means that we can better serve their needs.”

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Shundrawn Thomas, President at Northern Trust Asset Management says that serving these needs requires examination of what asset management traditionally offers and make it relevant to a new type of investor. The solution: FlexShares, actively designed and passively managed outcome-oriented products that enhance risk-adjusted returns:

“The vision of FlexShares really started with our belief that there was a significant opportunity to introduce a very mission-centric, investor-centric, Exchange-Traded Funds (ETF) provider. It starts with intentionally listening to what clients’ needs are, and doing our very best job to anticipate those needs, trying to identify the challenges or problems that they have. Northern Trust responds by being ahead of the curve and meeting investors, not only to where the challenges are, but more importantly to where the long term opportunities are.”

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The new investor is not only looking at bottom-line returns; as Chris Huemmer, Senior Investment Strategist FlexShares at Northern Trust Asset Management explains, long-term sustainability is important too:

“Our clients today are demanding innovation from us, not just based on financial metrics and our evaluation of a company's balance sheet. They're asking us how a company is managing the risks of their long term business model through a sustainability lens. From shareholder activism to global regulation, companies are having to manage how they do business around the world today, based on environmental, social and governance indicators.”

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Julie Moret, Global Head of Sustainable Investing and Stewardship at Northern Trust Asset Management says that there are two reasons for this shift:

“Number one, the growing relevancy and awareness of sustainability challenges, such as climate transition impacts, resource scarcity, or growing awareness of social issues. Secondly, we're experiencing the largest intergenerational transfer of wealth estimated at $30 trillion. Reports have identified the younger investors are looking for positive market rate returns alongside positive outcomes to the environment and society.”

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The response from Northern Trust, says Marie Dzanis, was to become one of the very first ETFs to launch a climate change exchange traded fund. Daren Wojnar, Head of Funds and Managed Accounts at Northern Trust Asset Management says that this isn’t green washing: their criteria have to be robust:

“With so many sources of data measuring aspects of ESG progression across industries, we're asking which ones are more material to sector or industry, which ones we should consider in building resilience within our portfolios. The Northern Trust Factor Score is a direct response to that set of questions.”

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Julie Moret adds:

“Vector score enables a more precise, intentional and transparent means by which ESG considerations are incorporated into portfolio construction and management. The score is based on 30-plus years of our experience building and managing sustainable investment solutions for our clients all around the world.”

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The Covid-19 pandemic has shown that there is a greater need to focus on sustainable investing; the investment industry is sitting up and taking note. Julie Moret describes it as “a structural shift in the way that we invest”:

“Fundamentally, these issues are increasingly asking us to redefine what well managed businesses look like that can sustain the business, not just for today, but tomorrow and for future generations.”

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Daren Wojnar says that the success of the project shows that change is happening:

“FlexShares has just celebrated its 10th anniversary. In that time, achieving close to $20 billion of growth has allowed us to really recognize how FlexShares can be helpful and useful to financial advisors and institutions alike.”

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Shundrawn Thomas says that the modern investor has values that match those of Northern Trust:

“We want to be among the world's most respected investment managers. That means that we can't just do products to turn a quick buck; there has to be an intellectual honesty around everything. In the course of my career, I've worked on some really great things, but I don't think I've had the privilege of working with a group of people that believe more in our mission and our vision.”

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