Customized sustainable climate indices created for Northern Trust’s FlexShares

Asset Managers

ETF providers

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The need

FlexShares, part of Northern Trust Asset Management, wanted to launch ETFs based on indices that meet sustainability criteria while considering high dividend and low volatility requirements.

The challenge

Northern Trust Asset Management wanted to incorporate their proprietary ESG and quality scores into the index construction process.

The solution

We collaborated with FlexShares to develop strategies that efficiently manage the risks and opportunities arising out of ESG and climate issues while avoiding companies that are poorly managing them. With the open nature of the Axioma Portfolio Optimizer^TM , we integrated FlexShares proprietary ESG and quality scores. The investment philosophy behind the designed strategies was to capture the excess returns from rewarded factors such as quality, low volatility and dividend yield while controlling for sector, region, country and security-level biases that add to risk but not to returns. The following resulting indices are being used as benchmarks for ETFs:

• iSTOXX^® Northern Trust Developed Markets Low Volatility Climate ESG Index
• iSTOXX^® Northern Trust Developed Markets High Dividend Climate ESG Index
• iSTOXX^® Northern Trust Emerging Markets Low Volatility Climate ESG Index
• iSTOXX^® Northern Trust Emerging Markets High Dividend Climate ESG Index