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Northern Trust, MSCI Create Custom ESG Indices

Northern Trust has partnered with investment decision tools company MSCI to give more environmentally and socially responsible investing options to the investment management company’s clients.

Under the agreement, Northern Trust will use MSCI’s environmental, social and governance research, ratings and screening tools to provide customizable ESG portfolios. Northern Trust clients looking to integrate ESG factors in their investment portfolios can now access 79 distinct indices ranging from global ESG best in class to regional responsible investing themes, such as clean technology, and further customize these according to their requirements, according to the  company.

Northern Trust says it is also working with MSCI to create custom ESG indices for passive institutional funds.

The trust manages about $17 billion in socially screened, active and passive managed portfolios for clients across the globe, and its Northern Trust Global Sustainability Index Fund was the first mutual fund to track a global sustainability index and rates, the company says.

According to Customized Beta – Changing Perspectives on Passive Investing, a study conducted by Northern Trust in 2011, 44 percent of investors surveyed said that their responsible investing allocations had increased in the past two years.

Last month, FactSet Research Systems said it has integrated MSCI ESG research data and ratings onto its platform, also in an effort to make it easier for clients to invest in environmentally and socially conscious companies. FactSet provides financial data and analytical software for investment professionals.

A September survey conducted by Malk Sustainability Partners and the Environmental Defense Fund found many of the most recognized names in the private equity industry — including TPG Capital, KKR and Blackstone — use ESG tools to create financial value for their investment funds. Looking forward, nearly all of the firms surveyed expect to increase their focus on these concerns.

In August, responsible investment consulting firm Mercer announced that it would start including ESG ratings in client reports related to manager searches and performance by the end of 2012. According to the firm, ESG factors are becoming more important to long-term investors, and they can be significant risk-return drivers.

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