Northern Trust Wealth Management CIO Kate Nixon and Nasdaq CFO Ann Dennison

Yahoo Finance's Seana Smith has a wide-ranging conversation with Northern Trust Wealth Mgt. CIO, Kate Nixon and Nasdaq CFO Ann Dennison on investing with purpose, including ESG investing.

Video transcript

SEANA SMITH: Katie Nixon is Northern Trust Wealth Management's chief investment officer. She handles investment policy development with a focus on creating the best portfolio for clients. Nixon also directs over 200 Northern Trust portfolio managers across the firm's 60 plus Wealth Management offices. And Ann Dennison is the NASDAQ's chief financial officer. She has been with the NASDAQ for five years and has more than 20 years of experience in financial reporting and analysis. Prior to joining NASDAQ , Dennison worked at Goldman Sachs.

I'm Seana Smith. I'm joined by Katie Nixon and Ann Dennison. Katie and Ann, it's great to see both of you. Katie, I will start with you, because today's summit is all about the path forward. And when we think about the path forward when it comes to investing, we're seeing more and more investors place the bigger emphasis on and also prioritize ESG. And I know that this is something that's very important to you and your colleagues at Northern Trust. Just talk to us about how you've seen interest in ESG evolve over the past few years and where we are today.

KATIE NIXON: Well, it's been such an interesting journey for ESG over the last, really, I would say, 24 months. We've always had sort of this bubbling up of interest across our investor base for wanting to learn more about ESG. So we've been having these conversations for quite a long time. But it's been really recently in the last couple of years that we've seen those conversations translate into portfolio action.

And I guess I can draw it to two things that have happened. Clearly, the pandemic really laid bare some of the big issues that we're dealing with from an S perspective. So the social unrest and the income inequality that we all experienced and saw over the last couple of years has really, I think, been a wake up call for investors, that they really have the power to really focus on that and potentially drive some change.

Also, in the last couple of years, we've had some pretty extreme climate events. And I think that has also laid bare the need to focus on the E of the ESG. And then finally, I'll say that what we've seen across the families that we work with is really a desire to build a bridge between the generations. And what we've found is that the ESG conversation can really help build that bridge. So clients are using-- and families are using the conversation to try to engage the next generation into the important conversation about values and about the responsibility that comes with wealth.

SEANA SMITH: And speaking of building bridges through ESG, Ann, you took over as NASDAQ CFO earlier this year. So it hasn't-- it's only been, like I guess, just several months since you've taken over this position. And in that very short time, you've already revitalized NASDAQ's ESG reporting. How are you approaching ESG at the NASDAQ today?

ANN DENNISON: Yeah, sure. So I think for us, you know, the most important thing is not-- it's not a separate thing. So we're making, you know, ESG as part of our overall strategy as an organization. And so when I think about it, there's two pieces for NASDAQ. One is on the corporate side. We think about, you know, our sustainability and how we report it to investors and stakeholders. And then the commercial side, where we look for, you know, solutions to help clients solve problems.

But on the corporate side, it's a journey, right. We're maturing. We're improving our statistics. We're also improving the data underpinning all of the reporting that we do. And so as CFO, you know, part of my duty is to make sure that we're disclosing, you know, the right things and also expanding those things. But also that, you know, investors can rely on it, and that it's standard, and they can think about it across industries.

SEANA SMITH: And talking about disclosing the right thing or the key metrics, I guess, what's key when discussing this or communicating your ESG vision to investors?

ANN DENNISON: Yeah, I mean, what's key for us is really the transparency and, you know, understanding obviously, maybe not just investors, but more broadly, what all of our stakeholders want to hear from us. And so we're engaging with our investors, our employees, our suppliers, the community, and understanding, you know, 100% of the conversations that we have with investors has some element of ESG as part of that-- you know, the discussion, whether it's a corporate strategy or the commercial strategy.

And really taking what we hear from all of our stakeholders, investors being a big part of that group. And making sure we're listening, we're hearing, and that we're adjusting our disclosures so that they can, you know, evaluate us in a way that they want to. And so we have a new org structure around the reporting that sits, you know, within the CFO or the finance world, the head of corporate ESG. But we have a lot to-- you know, to continue to do to keep executing and giving investors what they need.

SEANA SMITH: So Katie, there certainly is more of an interest in ESG. Yet, we're still seeing this gap between investors showing interest, and then, of course, those taking action. Why do you think this is? And what do you think is needed in order to close that gap?

KATIE NIXON: So I think Ann actually hit on some of the key issues here. And one of them is measurement. You know, we're still-- she used the word journey, I love that word, because we're still on a journey here and figuring out how to collect consistent data, how to measure success. And I think, you know, investing is a quantitative business. So without having those quantitative anchors, it can be really difficult, I think, for many investors to make that leap of faith into a full ESG solution.

So that's been an impediment, sort of the lack of consistent definition, the lack of consistent data, the lack of being able to really measure success. But we're really seeing that evolve over time and improve over time. And so I do think that that as an impediment will lessen and lessen over time.

And then it comes down to really deciding how investors want to implement an ESG strategy. And they can do everything from a passive strategy, to full on integration, to SRI and impact investing. So it's a more complicated conversation that requires a little bit more sort of self-discovery than a typical investment conversation has. And, you know, that just takes time.

So we do think with the improvement of data and the evolution of time, we'll see many more sort of words turn into action on the ESG front. And we're already seeing that today, Seana. We're seeing a lot of investors really want to put their money where their mouth is on the public equity side, on the private equity side, really develop strong family mission statements, family value statements to really intentionally align their investments with their family values.

SEANA SMITH: And Katie, you just brought up measuring success. And it points to some of the data points that you were just mentioning before. But I'm curious from your perspective, when you sit down with your colleagues or when you discuss your initiatives with other executives, how would you or how do you plan to measure that success?

ANN DENNISON: So for sure, we're thinking about this all the time. And how we're going to measure that is, you know, setting. So first step is disclosure, you know, making sure that the data underpinning our disclosure is accurate and we have strong support for it. But then as we look forward, thinking about where do we want to go and measuring ourselves along the way.

So, yu know, one good example of this is going to be around environmental disclosure. So starting this year-- you know, we've been three years carbon neutral. But starting this year, we committed to, you know, at NASDAQ, to disclosing science based targets. That's a journey. And so we're working, you know, to put in an environmental management system and thinking about how to validate all of the data that we have so far. And so success will be validating that data, getting to our disclosures, and feeling really good about what we're putting out there that investors can rely on it.

SEANA SMITH: And Katie, going back to something that you said a few minutes ago, you brought up the fact that ESG is an opportunity in order to build a bridge between generations. And I'm curious to get your perspective. From the conversations that you've been having with your clients, how do the goals or how did the interests differ based on generations when it comes to ESG investing?

KATIE NIXON: You know, it's so interesting because I think the perception is that ESG is sort of a millennial thing or a younger person's thing. And we've actually seen a lot of interest in ESG across our generation one and generation two investors. So it's not just a Gen Z or a millennial thing. The way that they're thinking about it, though, might be a little bit different.

And I do think what we're seeing in the G1 and G2 areas is an interest not only in ESG as a values based investment strategy but as an opportunistic strategy. As many of these investors sort of want to lean in to where the puck is going, green energy, for example. They want to have investments in their portfolio that will take advantage of those opportunities. It's sort of that double bottom line kind of concept with the G1 and the G2.

And then clearly, we have the younger generation that really want to make sure first and foremost, that they do no harm. So that's what I hear mostly from our families is that the younger members of the family want to make sure that the investments they're making are not investments that are bad from an ESG perspective. And then you have everything sort of in between those two also between the generations.

So I think it's hard to draw-- to draw too many black and white conclusions about where ESG fits in across the different generations of families. Because I think it's changed and evolving. Over time, a lot of the reason that it is is some of the things that Ann is talking about. Companies are evolving just as investors are evolving. So companies are taking a real front seat here and driving some of these initiatives, and bringing them to investors' attention, which again, I think just keeps the ball rolling in such a positive way.

SEANA SMITH: And Ann, as we take a step here and take a more broad approach to the market, we're right around record highs. I know the IPO market this year already setting new records. When we take a look at what we could expect heading into the end of the year, what's your sense of what we could potentially see over the coming months?

ANN DENNISON: Yeah, sure, I mean, we continue to see, you know, strong pipeline out there. And so, you know, if the markets hold up, well, you know, hopefully, the activity holds up, and we continue to see strong capital markets.

SEANA SMITH: And Katie, for a similar question to you. More specifically, what are you telling your clients or how are you advising your clients to be positioned for the remaining months of the year?

ANN DENNISON: Right, so I agree with Ann, I mean, the stars are really aligned with very cheap and abundant financing, very strong fundamentals. We're just at the beginning of the earnings season, but so far, so good, we're going to hear some, I think, exceptional results from companies. So the fundamental foundation remains good.

But I guess what I would say is what I would always say coming in to the end of the year, but maybe perhaps more so this year, given the fact that we've had such extraordinarily strong capital markets, is we're advising investors to sort of get back to their goals. Let the goals drive the portfolio. As we close out the year, it's a perfect time to look at your asset allocation and just make sure it's aligned with your long term goals.

Make sure that you're not overweight and equities right now. It's a perfect time to think about rebalancing, given the strong returns that we've had. Make sure that you have enough cash and high quality fixed income. A lot of investors right now are getting scared of bonds. They're afraid of rising interest rates. They're reading the front page of the paper. And they're nervous about losing value in their bond portfolios.

We say, don't fear bonds. Bonds still play a very important role in your portfolio. They provide diversification and liquidity. You need fixed income. So look at your goals, align your portfolios, reposition where you can and where you need to given the strong returns we've had this year. And then, we're constructive on the market. So do that, and then hope risk assets continue to excel.

SEANA SMITH: And Katie, real quick, because inflation's obviously a serious headwind. But then we, of course, have the issue when it comes to supply chain crises, the bottlenecks that we're seeing play out. And, of course, the ripple effects that that's having throughout the market. How big of a risk do you see this posing to investors, at least in the short term?

KATIE NIXON: You know, Seana, I mean, I think this is probably the biggest risk that we have right now is that inflation expectations become unanchored. We have seen expectations rise pretty notably over the last couple of weeks. They tend to be really tied towards gas prices, which is not surprising. That's sort of what we see on a regular basis. So our expectations tend to get tied to what we experience frequently.

So we are seeing expectations come up. We are seeing the supply chain issues more prolonged than we had anticipated. We do think, though, that a year from now-- it's hard to think about it this way, but a year from now, investors are not going to be worried about inflation. So we're not going to build an overly inflationary protected portfolio for clients right now, acknowledging that we do think this will pass, It's just going to take a little bit longer. But you're right to bring it up because it's probably the biggest risk in the market right now.

SEANA SMITH: Katie Nixon and Ann Dennison, thanks to you both for joining us today.

KATIE NIXON: Thank you, Seana.