Socially responsibly investing (SRI) typically involves measuring the ethical, social, and environmental record of a company in addition to its financial performance when deciding whether or not to invest.
The primary reason behind the development of the FTSE4Good Index was market demand, according to FTSE spokesman, Michael Gormley, who spoke with PLANSPONSOR.com . “FTSE has taken great pains to create a set of criteria that reflects the current thinking and consensus about global corporate responsibility,” he added.
“SRI is a growing theme within the investment arena, and to date the range of benchmarks and index related products that socially responsible investors can look at, has been lacking,” he added.
The Fab Four
The series includes four tradable indices, constructed by screening the corporations included in the base FTSE index universe. They are:
- FTSE4Good Global 100,
- FTSE4Good US 100,
- FTSE4Good UK 50, and
- FTSE4Good Europe 50.
In constructing the indices, certain sectors were first excluded from the FTSE base universe, such as tobacco producers and manufacturers of weapons, to create the eligible universe, then each stock was screened using a standardized, transparent set of criteria.
For the FTSE4Good Europe benchmark index, 592 stocks were considered for inclusion before applying the exclusion and criteria screens. Of these, 383 were eliminated. The remainder represents about 60% of the total market capitalization of the original universe.
Likewise, for the FTSE4Good UK benchmark index, 759 stocks were first researched, of which 283 were included in the final index, representing 77% of the original index’s total market cap.
But just because a stock was excluded, doesn’t mean that the company is socially irresponsible, it simply means that it does not fit the criteria, Gormley told PLANSPONSOR.com .
Setting the Standards
One of the rules for inclusion is that the company should have a written policy in place concerning company practices in the key areas examined. Although not putting a policy into writing doesn’t make a company irresponsible, Gormley notes.
Members of the FTSE4Good Advisory Committee, who are independent market practitioners in corporate social responsibility and SRI, set the criteria after consulting with SRI specialists, constituent companies, non-governmental organizations, governments and other interested parties.
Glasnost and Perestroika
Under the direction of the Advisory Committee, the Ethical Investment Research Service, or EIRIS, researched and analyzed the companies in the FTSE base index, using publicly available sources and information from the companies themselves.
The results are completely transparent and should encourage companies to be transparent with regard to their policies and activities, according to Gormley. In fact transparency is one of the primary objectives in the series’ design. Companies can go to the FTSE4Good Web site to get full details on selection criteria. If companies, included in the FTSE base universe, meet the criteria, they will be included in the series.
The criteria are expected to change with the movements in investor thinking in the SRI area. Although the committee is scheduled to meet twice annually to review constituents and criteria, there are policies in place for immediately making decisions regarding companies involved in controversies or disaster situations where they may be found in breach of the criteria.
In addition to being an investment tool, the index is a vehicle for charity. FTSE is donating the licensing revenue generated from the indices to UNICEF. The company anticipates that FTSE4Good, will provide a minimum contribution to UNICEF of $1 million over the first year of its operation.
– Camilla Klein firstname.lastname@example.org
Read more at FTSE Details Socially Responsible Investment Criteria at
Complete listings of companies in each index, as well as detailed information on the criteria for inclusion, can be found at http://www.ftse4good.com .