Northern Trust enters 2024 with newly acquired ESG capabilities courtesy of its recent investment in private-market data start-up Novata.
The US-based asset servicing and investment management provider bought a minor stake in Novata late last year and has begun bedding in its data management solution into its own offering. Less than two months since the deal was signed, Northern Trust’s clients have access to sustainability data and analytics to help them assess their portfolios.
With private markets accounting for between a third and a half of all financial institution investments, Northern Trust said its decision to partner with two-year old Novata was driven by interest in ESG data shown by large investors, including endowments and foundations.
“Novata is a great fit to provide a capability to our clients that I think will benefit from two major trends we continue to see in the marketplace – an increased focus or investment in the private markets and the continued growing demand for good ESG data,” Paul Fahey, Northern Trust head of investment data science, asset servicing, told ESG Insight.
“Over the longer term its investors who are going to drive more of the demand for ESG and not so much the regulators.”
Unique Proposition
Fahey said Northern Trust selected the fast-growing start-up because it offered a unique proposition for its clients. Based in New York, Novata was established in the autumn of 2021 to provide the data and tools to give greater visibility into the sustainability of private-market portfolios.
Data and technology providers are keen to service private markets as sustainability goals rise up the agendas of portfolio companies, despite the relative absence of regulatory obligations for them to report on their ESG performance. PwC, which estimates private investment into European ESG assets will total €1.2 trillion by 2025, 42 percent of total private market assets.
Novata’s youth was no deterrent to forming a close working arrangement. “They are unique in how they do what they do, and the reach that they have,” he said. “If you look at both the individuals and the leadership team at Novata, there are decades of experience in this space.
“The company may be new, but the personnel have long histories. And look at some of the other investors in in Novata, the likes of S&P and the Ford Foundation – these are quality firms.”
Data Collection
Novata offers ESG benchmarking and data collection, management and storage solutions that can help clients identify sustainability opportunities and risks within their portfolio companies. Those companies provide the data for the platform and the information is also aggregated and anonymised so that other companies can benchmark their own portfolios.
“Their technology is great, but in addition to that they’re providing expertise, real expertise around ESG both through the ESG experts and the private market experts,” said Fahey.
“That combination of technology and expertise I think provides a unique proposition to the market to capture quality ESG data, identify the metrics that matter to the GPs and LPs and deliver back meaningful results to allow the portfolio companies to identify where they’re doing well in the ESG space where they have opportunities for improvement and give those benchmarks and those metrics meaningful weight.”
Operational Confidence
Novata works largely with data reported by portfolio companies. While the accuracy of self-disclosed information has been the subject of debate, especially among critics of ESG, Fahey is confident that Novata’s capabilities can ensure that the information provided to clients is of the highest quality.
“They provide a capability and a tool that encourages completeness and accuracy of reporting from the portfolio companies and pretty comprehensive structure around the questions that are being asked and the surveys that the portfolio companies are completing,” he said.
“The ESG experts at Novata provide a level of comfort that the data is both accurate and complete in its form, and in the ongoing analysis of that data over time and the trends and identifying a consistency of that reporting. That level of analytics I think provides a quality and completeness of ESG data, albeit self-reported by the portfolio companies.”
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