While the vast majority of readers will be aware of the FTSE 100, a benchmark charting the performance of the hundred largest companies listed on London Stock Exchange, you may not realise that FTSE Group (which is owned by LSEG) actually produces over 100,000 indices comprised of assets from around the world.
While these benchmarks can range from aiming to capture the most simple to the most complicated segment of a market, FTSE is particularly proud of the work it has done over the past decade in the environmental, social and corporate governance (ESG) space.
ESG refers to three of the key factors that should be considered when measuring the sustainability and ethical impact of an investment.
In 2001, FTSE took its first steps on a journey to break new ground in responsible investment, by creating an index that aimed to capture and measure the level of social responsibility (or ESG) within individual companies.
We realised that the world was changing rapidly, with an increasing focus on a range of ethical and sustainable themes such as climate change and fair trade. We realised that investors wanted to be aware of how different businesses measured up against these new standards, and furthermore we realised that the companies wanted to know where they stood against their peers.
FTSE began to produce a number of pioneering products in the ESG sector, including the FTSE Environmental Market Series, the FTSE ESG Ratings and most notably, the FTSE4Good Index.
The FTSE4Good Index Series has been designed to objectively measure the performance of companies that meet globally recognised corporate responsibility standards.
The criteria has been developed in close consultation with a broad range of stakeholders including NGOs, governmental bodies, consultants, academics, the investment community and the corporate sector.
They are then used to assess a universe of around 2,300 companies globally, with just under 900 meeting the required standard and forming the FTSE4Good.
The index can be used as an investment tool, however increasingly it is also used for research (identifying environmentally and socially responsible companies), as a reference point (it allows companies to assess their progress and achievement) and as a benchmark (tracking the performance of responsible investments).
FTSE4Good is constantly evolving, and we strive to ensure that it is the standard setter in capturing the range of challenging themes that arise when looking at ethical issues, such as environmental management, human rights and bribery.
A number of new criteria themes have been added over the years and hundreds of companies around the world engage with our dedicated ESG Business Unit to improve their practices in order to meet the new requirements.
Five times in the last 10 years FTSE has strengthened the inclusion requirements for the FTSE4Good indices. Approximately 60 per cent of the over 1000 direct engagements FTSE has had with companies in the last 10 years have resulted in, or coincided with, improvements to a company’s ESG disclosure and practices.
We constantly strive to build on the work we have done by developing further analytical tools for responsible investment.
We feel that our desire to provide suitable ESG data solutions is matched by the rising interest of asset owners and retail investors worldwide, and the future looks bright for this pioneering form of investment.