Socially Responsible Investing: FTSE4Good Index Series
Many investors want to know that the companies that they put their money into are good corporate citizens, and are stewards for a better environment. Socially responsible investing is becoming more popular, and there are more tools than ever for investors who wish to keep their money greener.
One such tool is the FTSE4Good Index series. It was created by The FTSE Group, which is an indexing company that is jointly owned by the Financial Times and the London Stock Exchange. The company creates indexes, which are groups of companies that are put together in categories based on size or geography or any number of other classifications. The indexes measure the performance of that group of companies, and allow investment houses to allocate assets based on the information. You can invest in an index; you're essentially buying shares that are a cross-section of the companies included in the index.
The FTSE4Good Index series, which includes indexes such as FTSE4Good US and FTSE4Good UK, includes only companies that meet certain criteria; primary among them is environmental responsibility. The index requires that companies pursue good relations with shareholders, and support universal human rights as well. Companies that produce tobacco, nuclear power, nuclear weapons, or other weapons systems are automatically excluded from inclusion.
The environmental standards used in the inclusion criteria differ based on the impact of the industry. Fast food chains and oil and gas companies, for example, are held to higher standards than media companies or mortgage finance companies, because the footprint those industries leave on the environment is naturally higher.
Each year, FTSE reviews the group of companies in the index, and drops some companies based on whether they have continued to uphold the standard required for inclusion. Companies that have attained the standard for inclusion are added.
In 2004, 79 companies were added to the series, and 23 were dropped. Of the drops, 17 were removed for failing to continue to meet the environmental standard. FTSE is strengthening that standard, setting a higher bar for companies to meet than had been expected in the past.
Socially responsible investing is green in more ways than one: The FTSE4Good Global Index has brought handsome returns since the market bottomed out in 2002 following the tech crash. Since then, the FTSE4Good Global Index is up about 33%, and has slightly outperformed the FTSE 100 (the 100 largest companies in the world).
You can learn more about FTSE4Good and socially responsible investing in general at FTSE's website (registration required): www.ftse.com.