FTSE Launches Environmental and Social Rating System

A decade after the introduction of the FTSE4Good Index Series – a series of indexes that include only the world’s top companies on social and environmental factors – the FTSE Group announced it is launching the FTSE4Good ESG Ratings.

This new data service provides a comprehensive system to measure the Environmental, Social and Governance (ESG) practices of over 2,300 public companies worldwide.

There is an increasing awareness that ESG factors are an important component in understanding corporate risks and performance and in the achievement of long-term, sustainable investment returns.

In the decade ahead, the integration of ESG factors into investment analysis, decision-making and stewardship is expected to increase. Globally, 227 asset owners and 496 asset managers have signed up to the United Nations Principles for Responsible Investment (PRI), thereby committing to integrating ESG considerations into their investment and stewardship approaches.

The FTSE4Good ESG Ratings provide institutional investors with a flexible and granular scoring model which will enable them to understand a company’s ESG practices in multiple dimensions:

  • Overall ESG rating
  • Scores against a broad Environmental, Social and Governance pillar
  • Measurement against six ESG criteria themes including: environmental management, climate change, human and labour rights, supply chain labour standards, corporate governance and countering bribery.

The ratings are risk-relative and indicate a company’s success at managing its company-specific ESG risks. This means companies with higher ESG risks have more to achieve in order to obtain a high score.

In launching the ratings, FTSE Group highlighted the North American companies with the highest scores. The top ten are:

  • Ford Motor (NYSE: F)
  • Dr Pepper Snapple Group (NYSE: DPS)
  • Walt Disney Company (NYSE: DIS)
  • BCE Inc (NYSE: BCE)
  • Canadian Pacific Railway (NYSE: CP)
  • Intel Corp (Nasdaq: INTC)
  • Apollo Group (Nasdaq: APOL)
  • Baxter Intl (NYSE: BAX)
  • Boston Properties (NYSE: BXP)

The Top 10 countries with highest scoring ESG averages are:

  • Norway
  • Netherlands
  • Sweden
  • Finland
  • New Zealand
  • France
  • Spain
  • UK
  • Italy
  • Switzerland

The new FTSE4Good ESG Ratings provide a flexible tool for active portfolio management, manager selection, company engagement, risk management, company research and corporate ESG benchmarking. Active portfolio managers can use the ratings to define an eligible investment universe or apply the ratings to a propriety investment model.

Institutional investors can use the ratings to help them assess their portfolios against ESG themes and their exposure to ESG risks. As more fund managers and asset owners choose to engage with companies as part of their stewardship responsibilities, the ratings can provide them with an independent and objective measure to identify companies with whom they might engage and to track their progress.

The FTSE4Good ESG Ratings criteria are publicly available and follow clearly defined methodology and rules. To ensure their quality and accuracy they are overseen by an independent committee made up of experts from the investment community, academia, the business community, unions and NGOs. Company ratings are re-assessed twice a year by leading research provider, EIRIS.

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