Northern Trust Asset Management’s FlexShares Exchange Traded Funds announced today the launch of a new suite of core ESG ETFs focused on climate.
The four ETFs are the FlexShares ESG & Climate US Large Cap Core Index Fund (NYSE: FEUS); FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (NYSE: FEDM) FlexShares ESG & Climate Investment Grade Corporate Core Index Fund (NYSE: FEIG), and FlexShares ESG & Climate High Yield Corporate Core Index Fund (NYSE: FEHY)
The four new climate ETFs add to FlexShares’ existing ESG ETF offerings, FlexShares STOXX US ESG Select Index Fund (ESG) and FlexShares STOXX Global ESG Select Index Fund (ESGG). The new fund suite seeks to help investors improve their portfolio’s overall ESG score and reduce carbon risk, while maintaining core equity and fixed-income exposure. The funds utilise the Northern Trust ESG Vector Score as well as a carbon risk rating in an effort to hedge ESG-related risks and capitalise on sustainable opportunities.
“The combination of our ESG Vector Score and carbon risk rating creates a complementary strategy to identify sustainability leaders and laggards in each sector in a consistent way,” says Christopher Huemmer, Senior Investment Strategist for FlexShares ETFs. “In response to heightened client demand for climate investing, we created this new suite to offer core investing strategies that we believe are better positioned to benefit from the ongoing transition to a low-carbon economy.”
The ESG Vector Score methodology developed by Northern Trust Asset Management (NTAM) seeks to identify ESG-related business issues most likely to impact a company’s financial performance and a portfolio’s investment return. The scoring methodology relies on a framework established by the Sustainable Accounting Standards Board (SASB) that seeks to determine sustainability industry leaders and mitigate sustainability risks before they impact the company’s financial statements and the portfolio’s performance.
With climate change a top concern among many investors and regulators globally, each strategy in the core ESG ETF suite also includes a special focus on carbon risk. In partnership with Institutional Shareholder Services (ISS), each company is examined using a carbon risk rating methodology to determine its current carbon emissions, its efforts to reduce its carbon footprint, and its potential exposure to carbon risk relative to other companies in its industry. Using these ratings, each strategy in the suite targets a reduction in aggregate carbon emissions and carbon reserves relative to its parent index, while also targeting an overall improvement in its carbon risk rating.
The launch of FlexShares’ new ESG suite coincides with the 10-year anniversary of the introduction of its first ETFs in 2011. Over the past decade, FlexShares has become a USD19 billion global brand committed to meeting complex investor challenges by providing investment solutions that go beyond conventional “off the shelf” products.
Following the brand’s expansion into the European market in January of this year, FlexShares’ product lineup now consists of 33 unique ETFs across the U.S. and Europe. At the core of its purposeful investment solutions are four real-world investment objectives: capital appreciation, risk management, income generation and liquidity management.
Darek Wojnar, Head of Funds and Managed Accounts for NTAM, says: “For the past decade, we’ve defined our place in the ETF industry through our primary focus on meeting specific investor objectives with quantitative solutions. Looking ahead to the next 10 years, we recognize the growing importance of sustainability to those objectives and the need for ESG funds that can serve as a core holding across asset classes. We believe this is a key area for growth as we position the business for continued success.”
