Despite being a growing reservoir of funds under management, this critically important pool of capital is confronting mounting problems collating and disseminating key data in a timely manner.
The ratings house is pinning its growth strategy on a revamped methodology that increases the emphasis on governance to 25 per cent – a timely move considering APRA’s proposed reforms.
Northern Trust ups the ante with its ESG strategies
(Pictured: Mamadou-Abou Sarr)
After 25 years of ESG investing, Northern Trust Asset Management is to better coordinate its efforts in the space and lift product innovation with the promotion of Mamadou-Abou Sarr to a new position as global head of ESG.
Abu Dhabi-based Sarr has been at the forefront of Northern’s ESG activities, which tend to be spread through the asset classes and regions. He will be the centre point for leadership and new product development, he said last week.
Northern has about US$58 billion invested in a range of, mainly passive, ESG strategies. Its first ESG funds were value-tilted index funds with negative screens. Today, the manager has a vast range of strategies, with the most-recently announced developments focusing on emerging markets and some innovative funds in Europe. Northern has linked up with MSCI and governance agency ISS to build the first emerging markets ESG index for investors and managers to measure themselves against.
Sarr said clients were looking for an exposure to emerging markets in a different way than previously. For instance, a lot of institutional investors would like to take more positions in various emerging markets but are wary of the numerous state-owned enterprises (SOEs), especially in the high growth countries of Asia such as China and India. More than 50 per cent of Shanghai-listed China ‘A’ shares market have substantial government ownership, so for those managers who avoid those stocks, their investment universe – and therefore opportunity set – is reduced considerably.
With this in mind, Northern has developed a unique governance screening which assesses the boards of SOEs for a range of factors, such as the degree of independence of each director, which may change investors’ views of the attractiveness of the stock.
Sarr also said that the trend to link smart beta with ESG strategies was a strong one, allowing investors to target specific strategies within a portfolio.
Sarr, who joined Northern from HSBC Global Asset Management in London in 2011, has a quantitative background. He is well aware of the adoption and integration of ESG principles by many big super funds and Australian-based managers and the fact that 120 of the UNPRI’s 1196 signatories are Australian managers and super funds. He quoted last year’s research by the Responsible Investment Association Australasia that the Australian signatories accounted for about A$940 billion and the estimate that about half of their assets are managed according to the principles.
While Northern Trust has a large Melbourne office for securities services, it provides marketing and support for its asset management from Hong Kong.
