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August 08, 2002
FTSE4Good to Fortify Human Rights Criteria
    by William Baue

FTSE4Good is conducting market consultation in preparation for strengthening human rights criteria for inclusion in its socially responsible indexes and funds.

In May, the Financial Times Stock Exchange (FTSE) Group announced more stringent environmental criteria that companies must meet to be included in the FTSE4Good socially responsible investing (SRI) indexes. In July, FTSE4Good initiated the process of strengthening its social criteria, focusing first on human rights. Specifically, it mailed a ten-question market consultation survey to human rights specialists, academics, multinational corporations, and nongovernmental organizations (NGOs) interested in human rights and SRI. FTSE is also accepting responses submitted by individuals via its website through tomorrow, August 9, allowing the staunchest human rights defenders to register their opinions.

The FTSE Group, which is jointly owned by the Financial Times and the London Stock Exchange, launched FTSE4Good in July 2001 with the stated intention of serving a normative function. FTSE4Good established a baseline of “challenging but achievable” standards of corporate responsibility, with specific plans to incrementally raise the bar of corporate social and environmental performance. This gradual approach encourages corporations to strengthen their social and environmental policies and practices in order to remain listed in FTSE4Good indexes and funds.

“Since the launch, nearly 100 companies have changed their corporate behavior in order to meet FTSE4Good criteria,” FTSE Group Deputy Chief Executive William Oulton told “36 U.K. companies, 32 European, 17 Japanese and 11 U.S. companies were previously excluded from FTSE4Good but are now included in the index due to their efforts to meet the criteria. We believe this is the strongest proof possible that the FTSE4Good index series is having a positive effect on encouraging responsible corporate behavior.”

Currently, FTSE4Good human rights criteria apply only to companies operating in certain sectors and in countries with poor human rights records. The FTSE4Good Advisory Committee, which consists of representatives from the pension fund industry as well as the corporate social responsibility (CSR) and SRI communities, proposes to require all companies in the FTSE4Good indexes to demonstrate a basic human rights policy. FTSE considers the UN’s Universal Declaration of Human Rights to be particularly authoritative in defining basic human rights.

The Advisory Committee intends to raise human rights standards beyond this basic level one sector at a time, starting now with the global resource sector.

“The global resource sector was chosen because of this sector's high profile exposure to a range of human rights controversies, due to, for example, impact on local communities from operations and abuses by security forces,” FTSE4Good’s market consultation paper explains.

“Does this imply that human rights issues are not relevant to other sectors?” asks Rob Cartridge, campaigns director at the London-based anti-poverty non-profit War on Want. “This could be the message that is sent. It will be interesting to see how the companies in the targeted sectors react. Will these companies claim they are being put at a competitive disadvantage because other sectors are not being targeted at the same time? If they do, it could undermine the process.”

FTSE4Good will also require companies with significant operations in counties with the greatest human rights concerns to meet more demanding human rights policy criteria.

“The problem with the gradualist approach is that you could have a company operating in a low risk sector in a low risk country, committing huge human rights abuses but staying in the FTSE4Good index,” said Mr. Cartridge. “Such a position would not only be immoral, it would also be very misleading to consumers who may be investing in FTSE4Good trackers in the belief that they are fully ethical funds.”

FTSE4Good still has the opportunity to consider such a possibility in formulating its human rights criteria.

“Keep in mind these are only suggestions and a final decision hasn't been made yet,” said Mr. Oulton. “The responses to the consultation paper will be evaluated and any strong views expressed in the responses will be taken into account by the FTSE4Good Advisory Committee at their September meeting.”


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