Tyler Lawrence: To start us off, can you tell me just a little bit about your roles at Northern Trust and how you each fit into the organization?
Connie Lindsey: I run our global corporate responsibility practice along with community development and diversity, equity, and inclusion. I report directly to our CEO, and from an oversight and governance perspective my function is under the purview of the governance committee of our board of directors. I work closely with Mamadou’s team. I sit on the ESG committee of senior leaders from around the firm as it relates to proxy voting and other governance matters.
Mamadou-Abou Sarr: I am the Director of product development and sustainable investing. I have also previously been the global head of sustainable investing, where I was responsible for ESG innovation.
TL: Connie, how have your interactions with companies around ESG issues changed over the course of the last few years? What are companies providing now that they weren’t before?
CL: Companies certainly are looking very closely at issues that have to do with diversity. They are also looking at issues related to sustainability, environmental matters, and their economic implications. So those are two of the top issues that we’ve seen. I think there’s also a migration towards higher levels of transparency.
TL: Many companies feel a tension that greater transparency also exposes them to greater risk and scrutiny. How can you convince companies that transparency is beneficial to them?
CL: At Northern Trust, we see corporate responsibility and ESG issues as a form of risk mitigation. We want to share with our key stakeholders and shareholders specific information about the firm, and delivering meaningful information to them can help mitigate some risk. But that’s for each individual institution to determine what that means for them.
TL: We know ESG investing is increasing, but which way does the causality flow—is increased demand for ESG products leading to investor innovation, or do you think that your own innovation is creating better products that are now more attractive to consumers?
MAS: Sustainable investing continues to be one of the fastest-growing market segments in the asset management industry. According to the Global Sustainable Investment Alliance report, global assets following some form of ESG factors reached $30.7 trillion at the end of 2018, which represents nearly one-third of the money managed professionally. The changing landscape of ESG “regulation” is among the main drivers of the ESG growth. Other factors include investors’ demand for fully integrated ESG strategies and a dramatic change of investors’ preferences in segments such as UHNWI and pension assets.
TL: Northern Trust is both an investor and a company in its own right, trying to do business according to ESG principles. How does your work as investors concerned about these issues inform your own internal operations and decision making?
MAS: We believe appropriate management of ESG factors can create long-term shareholder value for Northern Trust as an investment management firm as well as a publicly traded company. We align our business with the fundamental principle of sustainability: meeting the needs of the present generation without compromising the ability of future generations to meet their own needs. Our definition of sustainable investing acknowledges that the long-term financial success of our clients and shareholders is dependent on a healthy global environment, a stable society, and well-functioning, well-governed companies. As such, we believe that material environmental, social, and governance issues are business issues. When managed well, these factors can position a company for success. When managed poorly, they can lead to negative externalities that can result in reputational and financial risk. ESG analytics can complement quantitative or fundamental investment techniques to mitigate risks or capture new opportunities. As such, we view the integration of ESG factors in investment analysis as a key part of our responsibility as an asset manager.
TL: Looking forward a few years, where do you think that we’re going in terms of transparency around ESG issues and sustainability?
CL: I think it differs by regions in the world. I think in North America we are seeing some movement, but I see a different pace outside of North America and AMEA. For example, in the UK there are different ways that they are approaching ESG issues. The difference is not regulation or law, but the questions that various entities are asking about transparency. While companies are not required legally to participate, in order to deliver the story or the message around their brand, it is important to have good information and data.
TL: Within ESG, social areas are where the data is fuzziest. Companies don’t necessarily have the numbers yet to back up any of their initiatives. Do you have any thoughts on where you see ESG metrics going?
CL: I’m a proponent of higher levels of verifiable transparency. If a company makes a statement, it should be verified by relevant external sources. I think that is one of the most important things, going forward. Whatever organizations state about, for example, their human capital policies, needs to be verifiable and substantiated by external sources.
TL: So there needs to be some sort of relationship with a trusted auditor to verify that sort of data.
CL: That would be my position, yes. I serve on the board of the Global Reporting Initiative, and one of the things that we discuss as we’re developing the standards for preparing a corporate responsibility report is exactly that—how data is acquired, accumulated, ultimately reported, and then verified.
TL: Northern Trust’s own attitude towards community investment development falls under your purview, Connie. Can you give me a little bit of background about your initiatives?
CL: Our community development strategy allows us to concentrate efforts and resources on direct investments that have a sustainable community impact and aligns with our Community Reinvestment Act (CRA)designation. Northern Trust has maintained an outstanding CRA rating for 24 consecutive years. We have four specific focus areas in our strategy; affordable housing, job creation, wealth accumulation, and education. Social Impact Bonds or pay for performance is one aspect of our community development work. One of our early social impact investments in Chicago was a program designed to provide high quality pre-Kindergarten services to children in high-need communities, as well as, supportive resources to their parents to support their overall readiness for school and reduce the need for individual education programs.
TL: Mamadou, where do you see ESG investing going in the next few years? What shifts do you expect to see in demand or in the metrics available to assess ESG concerns?
MAS: Increasing interest in sustainable and ESG investing means more opportunity for investors to find the best fit for their portfolios. Sustainability is central to all investment areas, as investors increasingly demand solutions that fulfill a complete ESG portfolio. However, there are still holes to fill before the ESG portfolio is complete, and that’s where thoughtful innovation comes in. For asset managers, that means sustainable investing should be integral to product development that aligns with investors’ objectives. We are expecting ESG assets to grow substantially over the next few years as regulatory requirements and demand for ESG reporting increase. We are moving from an era of ESG information to ESG integration and forward-looking ESG data. Artificial intelligence and machine learning are becoming a critical part of the new metrics available to assess ESG concerns.
About the Experts:
Connie L. Lindsey is Executive Vice President and Head of Corporate Social Responsibility at Northern Trust, Chicago. She is responsible for the design and implementation of the global Corporate Social Responsibility, Community Development and Investments, and Global Diversity, Equity, and Inclusion strategy for Northern Trust and the development of goals, policies, and programs appropriate to the brand and business unit strategies. In addition, Ms. Lindsey provides oversight and leadership to the firm’s response to environmental matters as well as social issues within the marketplace, workplace, and community.
Mamadou-Abou Sarr is the Director of Product Development and Sustainable Investing at Northern Trust Asset Management, where he is responsible for driving innovation and product development across the company’s array of asset class capabilities. Mamadou oversees the strategic product group and provides strong leadership in the area of sustainable investing that fosters the implementation of sustainable investing across asset classes and channels.