May 09, 2005 — By Paul Geary, ENN
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.
Source: FTSE |