SECTION 1 : MYTH-BUSTING
This approach allows asset managers to make better comparisons between companies within each industry , identifying potential sustainability leaders . It ’ s also becoming a global standard : In 2022 , the International Sustainability Standards Board adopted SASB ’ s standards into its efforts to codify a new , global framework for reporting industry-specific material sustainability issues .
A forward-looking framework
Another persistent challenge with ESG reporting is that much of the information is historical . But investors are just as concerned about how sustainability issues may affect a company ’ s future performance .
The reporting framework provided by the Task Force on Climate-Related Financial Disclosures ( TCFD ) helps provide a forward-looking assessment of how companies are managing their material sustainability risks , and guidelines for the type of information companies should disclose relative to their climaterelated financial risks . Its disclosure recommendations are organised around four key elements : Governance – the company ’ s governance around climate-related risks and opportunities . Strategy – the potential impacts of climate-related risks and opportunities on company ’ s businesses , strategy and financial planning . Risk management – how the organisation identifies , assesses and manages climaterelated risks . Metrics and targets – the numbers companies use to assess and manage relevant climate-related risks and opportunities .
The power of combining frameworks
While each of these leading frameworks delivers valuable insights , combining them offers investors a more complete look at a company ’ s sustainability risks and opportunities . That is why FlexShares ETFs uses both frameworks in our proprietary sustainability scoring methodology called the Northern Trust ESG Scoring Methodology .
This approach starts with SASB standards to tell us what material sustainability risks to focus on for a company based on its industry . Then , we ’ ve adapted the core elements of the TCFD framework to cover all of a company ’ s ESGrelated issues ( not just climate-related risks ) to assess how the company ’ s sustainability risks may affect future performance .
For example , two companies in the carbon-intensive cement industry may have similar sustainability risks . But if one of those companies has quantified its carbon footprint , set specific carbon
“ INVESTORS ARE RIGHTFULLY DEMANDING MORE TRANSPARENCY INTO HOW INVESTMENT STRATEGIES INTEND TO DELIVER ON THEIR SUSTAINABILITY GOALS AND FINANCIAL OBJECTIVES ”
reduction goals and submitted those goals to a qualified third-party like the Carbon Disclosure Project , we would assign that company a higher score on the Northern Trust ESG Scoring Methodology .
Choosing the right data to analyse
Any sustainable investing methodology needs good ESG data to produce accurate comparisons between companies . The data provider that we believe offers the best information on a company ’ s climate
IMPORTANT INFORMATION profile currently available to ESG investors is Institutional Shareholder Services ( ISS ).
ISS has been collecting ESG-related company data for more than a decade . Its leadership position in the sustainable investing space means that we now have standardised , comparable data on important issues such as the full scope of a company ’ s carbon emissions .
However , we realise that the growth of sustainable investing will compel companies to report even more ESG data . Investors should look for sustainable strategies that can accommodate new data sources and integrate more detailed information in their portfolio construction process . FlexShares ’ strategies are already positioned to capitalise on the increasing availability of ESG data . The Northern Trust ESG Scoring Methodology uses an open data architecture , meaning that our ETFs can easily incorporate new data sources that emerge if they offer even better ways to compare companies .
The importance of a strong , scalable methodology
Investors are rightfully demanding more transparency into how investment strategies intend to deliver on their sustainability goals and financial objectives . We believe that looking for strategies that use a clearly defined sustainable investing methodology based on complementary reporting frameworks and reliable data sources can give investors more confidence in the sustainable strategies they choose .
Please refer to the prospectus and to the KIID before making any final investment decisions . This information does not constitute a recommendation for any investment strategy or product described herein . This information is not intended as investment advice and does not take into account an investor ’ s individual circumstances .
Investing involves risk – no investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment .
Northern Trust Asset Management ( NTAM ) is composed of Northern Trust Investments , Inc . ( NTI ), Northern Trust Global Investments Limited ( NTGIL ), Northern Trust Fund Managers ( Ireland ) Limited ( NTFMIL ), Northern Trust Global Investments Japan , K . K . ( NTKK ), NT Global Advisors , Inc ., 50 South Capital Advisors , LLC , Belvedere Advisors LLC , Northern Trust Asset Management Australia Pty Ltd and investment personnel of The Northern Trust Company of Hong Kong Limited ( TNTCHK ) and The Northern Trust Company ( TNTC ).© 2022 Northern Trust Corporation . Head Office : 50 South La Salle Street , Chicago , Illinois 60603 U . S . A .
Issued in the United Kingdom by Northern Trust Global Investments Limited . Issued in the EEA by Northern Trust Fund Managers ( Ireland ) Limited .
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