The MSCI Emerging Markets Custom ESG Index and Northern Trust’s corresponding fund are designed to enable institutional investors to gain exposure to the potential growth and diversification benefits of emerging markets investment, while incorporating traditional environmental and social screening, as well as a unique governance filter or screen.
The first filter or screen eliminates constituent companies of the MSCI EM Index that have been found to be in breach of the U.N. Global Compact’s ten principles. The second removes manufacturers of controversial weapons such as cluster bombs and landmines and finally tobacco manufacturers are excluded. Following these exclusions, any constituents lacking sufficient independence across ownership, board representation, key corporate committees and audit and remuneration committees are filtered out.
“Some investors are concerned that certain emerging market companies lack sufficient executive independence and scrutiny of management,” said John Krieg managing director for Northern Trust’s asset management arm in Europe, Middle East and Africa. “This challenge led us to examine how we could develop a passive investment vehicle that could filter out companies with less satisfactory governance criteria, while still enabling access to emerging markets.”