Ethical Performance
inside intelligence for responsible business


FTSE4Good index unveils criteria on climate change

September 2006

FTSE4Good, the equity index provider, has outlined climate change measures that it will soon expect companies to adopt if they are to be included in the FTSE4Good index.

Draft FTSE4Good criteria on climate change issued last month state that companies should have a clear greenhouse gas reduction strategy and a ‘long-term public goal of significant reductions over a specified time period’.

Constituent companies will also have to show year-on-year improvements in emissions reductions or be carrying out ‘transformational initiatives’

such as buying low-carbon electricity, generating renewable energy, cutting carbon dioxide emissions in the supply chain or switching to energy-efficient products and services. In addition, they must refrain from adopting a ‘negative position’ on the scientific consensus on global warming.

The criteria, which are now out to consultation, will initially apply only to companies in sectors judged by FTSE4Good to have ‘high’ or ‘medium’ impacts on climate change. High-impact sectors will include oil and gas, mining, chemicals, industrial metals, construction, travel and electricity. The criteria will be slightly less demanding for automobile, aerospace and defence, food production and pharmaceuticals companies, which are judged to be medium-impact.

Climate change issues have always been considered when FTSE4Good decides whether to include a company in its index, but there have been no specific criteria as in other areas such as bribery and corruption or breast milk substitute marketing.

Once the new criteria are finalized next spring, companies that fail to meet them will be automatically excluded from the index. A detailed timetable for their introduction will be announced on publication.

The draft was drawn up partly as a result of discussions in focus groups with various companies, including Honda, Peugeot Citroen, Umicore and Veolia, and consultancies such as Sancroft and URS. FTSE4Good’s new criteria are being introduced at a time of growing pressure on business to manage its impact on the world’s climate.

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