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climate change is next on FTSE4Good's agenda

July 2005

Further pressure on companies to respond to climate change will be generated by a decision on the part of FTSE4Good to make this an explicit test of eligibility for inclusion in the index from next year.

At the same time the index will look at whether to lift the bar against nuclear power companies because of their role in cutting carbon emissions.

FTSE has decided to develop climate change criteria after consulting 250 interested parties in 21 countries, most of whom said this was a top priority, even though it is already partly covered by FTSE4Good's existing environmental yardsticks.

The standards on climate change will be developed by FTSE4Good's criteria development subcommittee chaired by Craig MacKenzie, Insight Investment's head of investor responsibility. They are expected to require companies to develop policies and management and reporting systems for air emissions, energy efficiency and renewable energy.

Companies will be removed from the index if they fail to meet the criteria, but these are likely to be phased in gradually.

'Resource constraints mean we can't introduce designs of different criteria all at once, so we needed to prioritize,' said MacKenzie. 'We got a fairly clear signal that people want us to look at climate change first. And we also expect interest in climate change to accelerate in the next 12 months.'

Will Oulton, FTSE4Good's strategic adviser, said the criteria were likely to be 'explicit about measuring the climate change impact of companies'.

Consultation also showed that about three-quarters of the participants thought FTSE should re-examine whether nuclear power generators should be eligible to join the index. FTSE said the decision to review this was 'in line with a higher level of public debate on whether nuclear power, as a low carbon dioxide emitting energy source, can play a role in mitigating climate change'. Three other exclusions - of companies involved in defence, nuclear weapons systems and tobacco - will remain for the present.

FTSE will also produce a governance criterion in 2007 on how directors integrate CSR into management structures up to board level. In 2008 it will develop new sets of criteria on companies' responsibilities towards employees and customers, said to be less urgent by those consulted. New criteria on bribery and corruption will be ready by the end of 2005.

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