Northern Trust’s FlexShares has added an emerging markets strategy to its suite of socially responsible core portfolio ETFs.

Northern Trust has launched a core emerging markets ETF delivering low carbon and ESG-enhanced exposure.

The FlexShares ESG & Climate Emerging Markets Core Index Fund (FEEM US) offers broad emerging markets equity exposure while delivering an improved ESG score and reduced carbon risk compared to traditional benchmarks.

The fund has been listed on NYSE Arca with an expense ratio of 0.19%.

The ETF is linked to a proprietary index that begins its construction process from Northern Trust’s traditional market-cap-weighted benchmark for large and mid-cap stocks listed in developing countries.

The methodology first eliminates violators of UN Global Compact principles and companies that are involved in weapons, tobacco, or thermal coal.

It then utilizes an optimization process to select and weight securities from the remaining pool in order to boost its ESG profile (as measured by Northern Trust’s proprietary ‘ESG Vector Score’) and reduce its aggregated climate-related risk (as measured by Institutional Shareholder Services’ ‘Carbon Risk Rating’) while maintaining similar risk characteristics as its parent universe.

The ESG Vector Score relies on a framework established by the Sustainable Accounting Standards Board (SASB) that evaluates how well a company is managing financially material ESG risks specific to its industry. Four-fifths (80%) of the ESG Vector Score is determined by environmental, social capital, human capital, business model, innovation, and leadership factors. The remaining 20% is determined by a distinct governance score with respect to board and management quality, board structure, ownership and shareholder rights, remuneration, financial reporting, and stakeholder governance.

The ISS Carbon Risk Rating accounts for a firm’s current carbon emissions, its fossil fuel reserves, its efforts to reduce its carbon footprint, and its potential exposure to carbon risk relative to other companies in its industry.

Reconstitution and rebalancing occur quarterly.

FlexShares offers an additional two ETFs that deploy the same investment approach to universes of equities listed in the US and in developed markets excluding the US. They are the FlexShares ESG & Climate US Large Cap Core Index Fund (FEUS US), which comes with an expense ratio of 0.09%; and the FlexShares ESG & Climate Developed Markets ex-US Core Index Fund (FEDM US), which costs 0.12%.

Crystal McClenthen, Head of Product Strategy, Funds, and Managed Accounts at Northern Trust Asset Management, said: “FlexShares’ climate funds provide investors with a diverse set of core sustainability products they can use for exposure across the globe. The combination of our ESG Vector Score and carbon risk rating creates a transparent and consistent approach to ESG measurement which is particularly important when it comes to identifying opportunities in emerging markets.”

Darek Wojnar, Head of Funds and Managed Accounts for Northern Trust Asset Management, added: “Our central focus at FlexShares is to meet investor goals with innovative solutions, and increasingly that means supporting clients’ sustainability objectives. We believe our deep sustainability expertise and proprietary quantitative models will help investors gain core exposure to global markets while benefitting from the transition to a low-carbon economy.”