Northern Trust Asset Management Launches Climate Aware Index Strategy

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by | Jan 25, 2021

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Northern Trust Asset Management has launched a sustainable emerging market green transition index strategy, with climate change considerations as a cornerstone.

The strategy complements the asset manager’s existing World Green Transition Index strategy, launched in 2019. Together the strategies, using the MSCI World Index and the MSCI Emerging Markets Index as their parent indices, offer investors globally, subject to local distribution rules, the ability to obtain climate-aware exposure to the MSCI ACWI universe via custom indices designed by Northern Trust Asset Management and managed by MSCI.

Northern Trust says the strategy enables the incorporation of climate change considerations into a rules-based equity solution and revolves around five distinct climate-aware components to intelligently hedge the risks, and, importantly, incorporate the investment opportunities of tomorrow’s world. The firm says the result is a close to 70% reduction in carbon emissions intensity and almost 100% in potential carbon emissions of the strategy against the parent benchmark (according to MSCI data).

The Northern Trust sustainable emerging markets green transition index strategy will combine Northern Trust’s proprietary Environmental, Social and Governance (ESG) exclusion approach with screens to minimize climate related risks and include positive tilts to maximize opportunities to benefit from the transition to a low carbon economy.

Screens applied include fossil fuel exclusions (with the strategy fully fossil-fuel free, excluding companies with fossil-fuel reserves), and energy screen, to minimize current and potential exposure to carbon emissions and reduce exposure to any other associated risks. Positive tilts are then applied to companies with green revenues and a strong climate strategy by using the MSCI Transition Risk Management Score.

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