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‘high impact’ companies move into FTSE’s sights

March 2007

Companies with a relatively heavy impact on climate change have been given just under a year to meet strict new criteria to remain in, or enter, the FTSE4Good index.

Finalized climate change criteria announced by FTSE last month will require ‘high-impact’ companies to have a series of policies and programmes in place by 1 January 2008. They must have assigned board-level or senior-executive responsibility for climate change issues to an individual or a specific committee, and have also publicly stated that addressing climate change is a key concern for the business.

By the same date they will also have to be publicly disclosing either their total operational carbon dioxide or greenhouse gas emissions, or be disclosing an accepted comparative figure for their industry sector, such as the amount of carbon dioxide per tonne of product.

Six months later, by 1 July 2008, high impact companies must also have either publicly set a strategic goal of ‘significant quantified reductions’ of greenhouse gas emissions over more than five years, or put in place management targets for emissions reductions over less than five years.

Further down the line, by 1 January 2009 they will have to be able to show one of three things:
a reduction in carbon intensity of at least five per cent over the previous two years
that for the previous two years they have been in the top quartile of companies in their subsector when assessed on ‘accepted carbon efficiency metrics’
that they have implemented a quantifiable ‘transformational initiative’ such as buying low-carbon electricity or generating renewable energy.

Companies that have a medium impact on climate change, such as brewers and travel and construction businesses, will be set similar criteria but given six months longer to meet them.

About 250 companies are seen as having a heavy impact on climate change, and of these fewer than 50 are thought to satisfy the criteria at present. FTSE’s in-house Responsible Investment Unit will work directly with affected companies to help them understand the criteria and what they have to do to comply.

Belinda Howell, chief executive of climate change consultancy Greenstone Carbon Management said the criteria were ‘a great start and a step in the right direction,’ but added that FTSE4Good's measurement targets ‘are not clear enough’ and should be based on a single international standard for measuring emissions. The reduction targets were also not challenging enough, she claimed.

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