Northern Trust AM
Northern Trust Asset Management is a global investment manager that helps investors navigate changing market environments in efforts to realize their long-term objectives. NTAM joined the Net Zero Asset Managers Initiative in May 2022 and made its Initial Target Disclosure in August 2023.
Percentage of assets covered by the Net Zero Asset Managers Commitment Statement
10.8% of total AUM (USD $112 billion)
Information on interim target(s) covering the proportion of assets to be managed in line with net zero
Baseline(s):
The 3.5% of assets committed under the sectoral decarbonization approach had financed emissions of 58tCO2/$ invested as at the end of 2022. Of the 7.3% of exposure to assets committed under the portfolio coverage approach, 63% were considered not aligning as these companies did not have a decarbonization strategy as of December 31, 2022, while 37% are currently in the process of aligning.
Target(s):
Under the sectoral decarbonization approach, equity and fixed income strategies are included in the committed AUM (3.5%) and NTAM will be measuring the outcomes based on financed scope 1 and 2 emissions per unit of owned enterprise value including cash in line with the recommendations of the Partnership for Carbon Accounting Financials (PCAF). The strategies that fall within the commitment will target a 50% reduction in financed emissions by 2030.
For the additional 7.3% assets committed under the PCA, the targeted list of companies that fall within scope of CA100+ and NZEI comes to 228, which represent a fraction of the companies NTAM invests in as at the end of 2022. However, these companies represent more than 50% of the owned scope 1 and scope 2 emissions, and 44% when including scope 3. By 2030 we expect these companies will have developed and communicated a plan aligning to net zero.
GHG scopes included:
Currently scope 1 and scope 2 financed emissions are part of the commitment under the SDA, and NTAM will revisit the inclusion of scope 3 in the next update. The companies in focus for the portfolio coverage approach include scope 3 as part of the engagement selection process.
Over the long term, we support a holistic carbon foot printing approach (incorporating Scope 1, 2, and 3) to understand the carbon-related risks a portfolio is exposed to. We will gradually incorporate Scope 3 emissions starting with priority sectors, in line with the recommendations of the Climate Benchmarks Regulation, which also acknowledges the challenging current environment for incorporating Scope 3.
Methodology:
Net Zero Investment Framework
Science Based Target initiative for Financial Institutions
Scenario(s):
Currently, NTAM uses ISS ESG climate scenario analysis tool, which span short, medium, and long term time horizons and form an interpretation as to how the results may impact the business. The scenario utilized is the International Energy Agency Sustainable Development Scenario (SDS), which is a normative scenario in which the world meets the Paris Agreement goals with a 50% probability of limiting the temperature rise to less than 1.65°C. The output of the ISS scenario analysis tool measures the alignment of the forecasted carbon emissions of the strategy and its key sectors with the SDS carbon budget. We realize there is still more work to do to look more broadly across our strategies to better understand how climate change impacts vary in different scenario pathways. Over the near term, NTAM aims to adopt additional distinct scenario analysis with different probable outcomes (more than 2°C and possibly 3°C scenarios).
Additional information
Proportion of AUM committed:
For the assets committed, the aggregate reductions across the sustainable funds suite under the SDA target a 50% reductions in financed scope 1 and 2 emissions by 2030, which is in line with the SBTi Financial Sector Science-Based Targets.
Additionally, under the portfolio coverage approach, the companies in scope are small relative to the broader held companies across NTAM, but for these companies the share of total emissions are roughly 50% of our investable universe.
Policy on coal and other fossil fuel investments:
There are currently no plans to develop a policy that would encompass the full $1-trillion in assets under management overseen by Northern Trust Asset Management. With the majority of the NTAM assets under management in passive investment mandates, there is not an active risk budget that would enable us, as a fiduciary, to exclude these assets from a mandate.
NTAM has started the process of aligning the NT Custom Screens with the Sectoral Decarbonization Approach laid out in the SBTi framework as we transition to a low carbon economy. The suite of screens have been enhanced to identify (and exclude for investment) companies with activities inconsistent with the SDA methodology in the power generation, coal mining, and oil and gas production. The approach will continue to evolve, with a focus on high emitting industries outlined by the IPCC. These portfolios are included in the committed AUM.