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June 09, 2011
Report Describes Ten Years of the FTSE4Good Index Series
    by Robert Kropp

The groundbreaking index series, launched by FTSE and EIRIS in 2001, has led to improved ESG performance of companies through evolving standards and corporate engagement.

It has been ten years since FTSE and EIRIS launched the FTSE4Good Index Series, which, along with the Domini 400 and the Dow Jones Sustainability Indexes (DJSI), was among the first indexes to employ environmental, social, and corporate governance (ESG) criteria in the selection of constituents.

On the occasion of the tenth anniversary of its sustainable index series, FTSE has published a report that details the evolution of its sustainability criteria and the success of its engagement with companies.

Noting a four-fold increase in the growth in assets under management that incorporate ESG since 2006, the report states that "long-held misconceptions" about sustainable investment "have been turned on their heads," as the return on investment for the FTSE4Good Global Index has been 52.3% since its launch in 2001. Furthermore, as the Freshfields and Fiduciary II reports concluded, "Advisors to institutional investors have a duty to proactively raise ESG issues within the advice that they provide, and…a responsible investment option should be the default position."

During its ten years of existence, the FTSE4Good Index Series has undergone an evolution in its criteria, as the number of industry exclusions has decreased from five to two and requirements for inclusion in the index have been strengthened five times. Since its launch, 288 companies have been deleted for failure to meet inclusion standards, and 793 companies have been added. As of March 2011, the index consists of 894 constituents.

The report also provides a revealing behind-the-scenes look at FTSE's engagement with companies during the past decade. The engagement, the report states, "takes the form of letters, emails, calls and meetings to provide guidance and support as they work towards meeting the tougher ESG standards." According to the report, more than 1,000 engagements have led to 60% of companies improving their ESG performance. Only 25% of companies with which FTSE did not engage were successful inmeeting the new criteria.

The report devotes significant space to FTSE's new FTSE4Good ESG Ratings, which were launched in April. By measuring corporate performance according to public policy, management systems, and public reporting criteria, the ratings provide institutional investors with "a comprehensive, transparent and objective system to measure the Environmental, Social and Governance (ESG) practices of over 2,300 public companies worldwide," according to FTSE.


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