LONDON - November 4, 2020: Northern Trust logo and sign at the top of the 50 Bank Street Northern Trust building, Canary Wharf. Credit: Dave Cooil/Adobe Stock
The climate change retreat is growing, as trillion dollar asset manager Northern Trust exits Net Zero Asset Managers Initiative just weeks after BlackRock, the world’s largest asset manager, quit the initiative. Northern Trust, which is the third major asset manager to exit NZAM, has also withdrawn from Climate Action 100+, an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take action on climate change to mitigate financial risk.
Northern Trust’s exit from CA100+, announced the day after President Trump’s inauguration, leaves Wellington the only asset manager with more than $1 trillion in Climate Action 100+, which has included asset managers whose members manage trillions in assets and whose goal is to “engage” large corporations, such as Home Depot and American Airlines, to zero out CO2 emissions by 2050. Franklin Templeton and JPMorgan have also exited CA100+.
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While NZAM announced that it had suspended activities on January 10, the initiative apparently had not permanently disbanded, posting this message on its website: “Recent developments in the U.S. and different regulatory and client expectations in investors’ respective jurisdictions have led to NZAM launching a review of the initiative to ensure NZAM remains fit for purpose in the new global context … As the initiative undergoes this review, it is suspending activities to track signatory implementation and reporting.”
Vanguard quit NZAM in 2022. Over the last month, Morgan Stanley, Citigroup, Bank of America, Wells Fargo and Goldman Sachs and, most recently, JP Morgan Chase have all withdrawn from the climate coalition.
While ESG investing seems to be getting tremendous pushback, Northern Trust appears to be reconsidering its climate change initiatives, as ESG investing lawsuits prevail. Weeks ago, a federal judge in Texas ruled that American Airlines violated its ERISA duties by not focusing “on the best financial benefit” for its 401(k) plan, in the biggest victory yet in a case involving ESG investing.
The judge said American Airlines had breached its legal duty to make investment decisions based solely on the financial interests of 401(k) plan beneficiaries by allowing BlackRock, its asset manager and a major shareholder, to focus on environmental, social and corporate governance (ESG) factors.
While not related to ESG investing, Northern Trust agreed to pay $6.9 million earlier this month to settle a class action lawsuit by employees challenging the use of the financial service firm’s in-house “underperforming” target date funds for its 401(k) plan. Plan participants sued the firm and its fiduciaries for violating federal law by failing to monitor the plan investments, most notably the proprietary TDF fund.
Related: Northern Trust agrees to pay $6.9M over ‘underperforming’ target date funds lawsuit
Specifically, the plaintiffs called out the company’s decision to retain 11 Northern Trust Focus Funds, a target-date-fund suite from the firm’s asset management division, alleging that the funds underperformed relative to comparable TDFs for three years, while on the plan’s investment menu.
In March 2022, Northern Trust filed a motion to dismiss, however, in August 2022, a judge denied Northern Trust’s motion to dismiss, ruling that the plaintiffs had made enough of a case that the plan committee had neither sought the best investment options nor negotiated enough for the lowest fees.
About 14,000 people covered by $2.9 billion Northern Trust’s retirement plan who have invested in the company’s target date funds since 2015 are expected to benefit under the deal.
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Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
