Northern Trust Asset Management has launched its first ETFs in Europe, debuting with a pair of ESG equity factor strategies listed on London Stock Exchange and Euronext Amsterdam.

Northern Trust has made its European ETF debut with the launch of two climate-conscious factor strategies.

Carrying the FlexShares brand, the funds invest in developed market stocks, targeting quality companies with low volatility or high dividend characteristics while tilting towards those with low carbon footprints and strong environmental, social, and governance profiles.

The funds are the FlexShares Developed Markets Low Volatility Climate ESG UCITS ETF (QVFD LN; QVFD NA) and the FlexShares Developed Market High Dividend Climate ESG UCITS ETF (QDFD LN; QDFD NA).

Marie Dzanis, Head of EMEA for Northern Trust Asset Management, commented: “We’re pleased to present the first FlexShares products in Europe, which reflect Northern Trust Asset Management’s three decades of experience in managing sustainability-focused investment strategies.

“Actively designed with the transparency of indexing, these two ETFs are built specifically to fit within EMEA investors’ evolving needs to help manage portfolio volatility and deliver income in a low yield environment while doing so with a focus on quality.”

Darek Wojnar, Global Head of Funds & Managed Accounts at Northern Trust Asset Management, added: “FlexShares has been leveraging Northern Trust Asset Management’s investment capabilities since our initial US launch in 2011. As a global asset manager, we are pleased to extend our deep principle-based culture and collaborative approach with leading market expertise to complement our existing strategies in the European marketplaces.”

Index process

The funds are linked to the iStoxx Northern Trust Developed Markets Low Volatility Climate ESG Index and iStoxx Northern Trust Developed Markets High Dividend Climate ESG Index respectively – indices developed by Northern Trust in collaboration with Stoxx

The indices are derived from the universe of stocks that form the Stoxx Global 1800 Index, a benchmark comprising 1,800 constituents, made up of the 600 the largest developed market stocks each from North America, Europe, and Asia Pacific.

From this universe, any companies that are involved in tobacco, thermal coal, or weapons production are removed. Companies considered to be in violation of various international norms are also removed.

The index methodology then assigns quality scores to each company based on Northern Trust’s proprietary analysis of profitability, management expertise, and cash flow. Quality scores range from one to five with companies assigned to the lowest rank excluded.

The remaining companies are weighted according to a portfolio optimization process that seeks to enhance exposure to either the low volatility or high dividend factor, depending on the index, while simultaneously boosting the portfolio’s ESG profile, lowering its carbon intensity, and limiting deviations in region, country, sector, and constituent weights relative to the Stoxx Global 1800.

Specifically, the indices achieve at least a 20% boost in ESG score, a 50% reduction in carbon intensity, and a 20% improvement in carbon risk rating. The indices’ active weights for regions, countries, sectors, and constituents are capped at just one or two percent.

While adhering to the above constraints, the low volatility index minimizes its total variance, while the high dividend index maximizes its quality score and achieves an increase in dividend yield relative to the Stoxx Global 1800 of at least 75%.

The indices are reconstituted and rebalanced on a quarterly basis.

The low volatility fund (QVFD) comes with an expense ratio of 0.25% while the high dividend (QDFD) is priced at 0.29%.