To celebrate the 15th anniversary of its flagship environmental, social and governance (ESG) Index Series, FTSE4Good, FTSE Russell has launched the FTSE4Good Emerging Markets Index and FTSE4Good Latin America Index, extending the FTSE4Good Index Series to over 15 indices. The indices have been designed to serve as the underlying to future investment products such as exchange-traded funds (ETFs).
Mark Makepeace, CEO of FTSE Russell.
The area of sustainable investment has changed dramatically since the initial launch of the FTSE4Good brand in 2001, with consideration of ESG factors now seen as standard for most large institutional investors. There are currently over 1,500 signatories, representing over $60tn in assets under management, committed to the United Nations backed Principles for Responsible Investment (PRI), a doubling of the assets pledged to PRI since 2011. Signatories commit to a range of principles including incorporating ESG principles into investment analysis and decision making processes, and providing detailed annual reports on their progress in implementing the principles.
Mark Makepeace, Chief Executive, FTSE Russell, commented: “When we launched the FTSE4Good Index Series 15 years ago there was scepticism that this was a serious area for professional investors. Since then, the world and the investment landscape has changed beyond recognition and sustainable investing, climate risk, the transition to a low carbon economy, and ESG integration are now a core focus for our clients across asset owners, asset managers, consultants and banks.”
The Index Series provides investors with a transparent and objective benchmark for the equities performance of firms meeting specific thresholds in relation to ESG practices. Regular reviews ensure these indices continue to meet the criteria.
Over time the assessment has evolved into a much deeper and more sophisticated methodology. Since 2001, the ESG areas covered by the criteria have grown from three to 14 themes. These are Anti-corruption, Biodiversity, Climate Change, Corporate Governance, Customer Responsibility, Health & Safety, Human Rights & Community, Labour Standards, Pollution & Resources, Risk Management, Supply Chain (environment & social), Tax Transparency and Water Use. In turn, the number of indicators assessed has grown from around 40 to a model which now comprises over 300 data points.
The model applies particular emphasis on quantitative and sector specific indicators such as assessing fatality rates for engineering and construction companies, or assessing energy utility companies on tonnes of greenhouse gas emissions per MWh.
Due to the sustainability screens, the index tilts away countries with poor ESG records and corporate policies such as China which commands a 26.4% weighting in the FTSE Emerging Index but only an 8.1% weighting in its FTSE4Good counterpart. As of 30 November 2016 the largest country exposures in the FTSE4Good Emerging Markets Index are to Taiwan (18.3%), India (16.6%), South Africa (13.6%), Brazil (11.5%) and China (8.1%). The largest sector exposures are to financials (33.6%), technology (14.0%) and consumer services (9.2%).
Year-to-date (YTD) the index is up 13.9%, surpassing the return of 12.7% on the FTSE Emerging Index.
The country exposures within the FTSE Emerging Latin America Index are dominated by Brazil (56.2%), Mexico (25.2%) and Chile (11.8%). The largest sector exposures are to financials (38.4%), consumer goods (19.8%), consumer services (14.9%) and utilities (10.0%).
The index is up 23.3% YTD. Despite such strong performance it has actually underperformed the FTSE Latin America Index, mainly due to reduced exposure to Brazil and Mexico which were both strong outperformers in the region.
FTSE Russell is also releasing its new ESG Ratings data model, which provides underlying ESG data on more than 4,100 companies across more than 300 indicators.
FTSE4Good is part of FTSE Russell’s wider sustainability offering which includes the recent launch of the Green Revenues data model, tracking companies that generate green revenues (sales of goods or services that allow the world to adapt to, mitigate or remediate the impacts of climate change, resource depletion and environmental erosion).
The FTSE4Good Index Series family includes:
FTSE4Good Global Index
FTSE4Good Global 100 Index
FTSE4Good US Index
FTSE4Good Europe Index
FTSE4Good Australia 30 Index
FTSE4Good Japan Index
FTSE4Good US 100 Index
FTSE4Good Europe 50 Index
FTSE4Good Emerging Index
FTSE4Good Emerging Latin America Index
FTSE4Good UK Index
FTSE4Good UK 50 Index
FTSE4Good IBEX Index
FTSE4Good ASEAN Index
FTSE4Good Bursa Malaysia Index
FTSE JSE Responsible Investment Index
FTSE JSE Responsible Investment Top 30 Index