Today, the FTSE Russell celebrates the 15th anniversary of FTSE4Good, its flagship ESG Index Series.
The Index Series was launched in 2001 and provides investors with a transparent and objective benchmark. Companies meeting specific thresholds in relation to environmental, social and governance (ESG) practices are included in the index series with regular reviews to ensure that they continue to meet the criteria.
Fifteen years ago the assessment was relatively simple but that has evolved into a much deeper and more sophisticated methodology. Since 2001, the ESG areas covered by the criteria have grown from just three Themes at launch to 14 today. In turn, the number of indicators assessed has grown from around 40 to a model which now comprises over 300 data points, which are applied according to the industrial sectors and countries in which a company operates.
The model applies particular emphasis on quantitative and sector specific indicators. For example, within the Health and Safety Theme, assessing fatality rates for engineering and construction companies, and in the Climate Change Theme, assessing energy utility companies on tonnes of greenhouse gas emissions per MWh.
The area of sustainable investment has changed dramatically with consideration of ESG factors now seen as standard for most large institutional investors. To mark the 15th anniversary, FTSE Russell is launching today the FTSE4Good Emerging Markets Index and FTSE4Good Emerging Latin America Index, extending the FTSE4Good Index Series to over 15 indexes. These will provide valuable additions for those investors using FTSE4Good indexes who require an index option for their emerging markets allocations.
FTSE Russell is also releasing its new ESG Ratings data model, which provides underlying environmental, social and governance data on more than 4,100 companies across more than 300 indicators. This data will be available to subscribers alongside the Green Revenues (LCE) data model.
FTSE4Good is part of FTSE Russell’s wider and extensive sustainability offering which includes the recent launch of the Green Revenues (LCE) data model and FTSE Russell’s first Smart Sustainability index. Green Revenues (LCE) is a ground breaking data model that tracks companies that generate green revenues, a critical component missing from current sustainability models. The Smart Sustainability index is the first to combine a smart beta factor approach alongside climate change considerations. It has been chosen by Legal & General Investment Management (LGIM) for its new Future World Fund, which HSBC Bank UK Pension Scheme has selected for its equity default option, worth £1.85 billion, in its Defined Contribution scheme.
Mark Makepeace, Chief Executive, FTSE Russell, said:
“When we launched the FTSE4Good Index Series 15 years ago there was scepticism that this was a serious area for professional investors. Since then, the world and the investment landscape has changed beyond recognition and sustainable investing, climate risk, the transition to a low carbon economy and ESG integration are now a core focus for our clients across asset owners, asset managers, consultants and banks.”
The global rise of ESG investing:
Over 1,500 signatories with over US$60 trillion under management have signed the United Nations backed Principles for Responsible Investment (PRI), a doubling of the assets pledged to PRI since 2011.** Signatories commit to a range of principles including incorporating ESG principles into investment analysis and decision making processes. Signatories also have to provide detailed annual reports on their progress in implementing the principles.
London Stock Exchange Group is a pioneer in supporting the growing global green and sustainable financing movement, providing a comprehensive green and sustainable product offering. Further information can be found online at our Global Sustainable Investment Centre.