FTSE4Good invents new expulsion category for BPOctober 2010
BP has become the first company ever to be suspended from the FTSE4Good indexes.
The oil giant was one of eight businesses to be taken out of the index last month in the wake of the FTSE4Good annual review process. But rather than being ‘deleted’, as all the others were, BP has been ‘suspended’ – an unprecedented move that reflects the exceptional circumstances surrounding the company’s Gulf of Mexico oil spill and the severity of its misdemeanours.
In practical terms ‘suspension’ is no different from ‘deletion’, as to qualify for re-inclusion BP will have to undergo the same process and meet the same criteria as other companies that have been deleted.
But FTSE4Good’s committee felt compelled to come up with the new classification due to the scale of BP’s failings across various criteria, and because it effectively had to invent a new process just to deal with the company’s predicament.
David Harris, head of responsible investment at FTSE, told EP the exceptional measures had been taken ‘due to the magnitude of this incident’ – and so that the committee could ‘take immediate action’. FTSE4Good’s committee had looked at BP’s history of past incidents and its response to their aftermath, and found that the company ‘was not exemplary in either regard’.
BP’s fall from grace has led to the creation of a new framework for ‘exceptional crises’ that will allow FTSE4Good to ‘reach a resolution more quickly’ in similar future cases. The three-step process will involve an analysis of the scale of any problematic issue and the level of the company’s responsibility for it, a consideration of any ‘exceptions’, such as a previously exemplary record or response, and, if exceptions are not present – as was the case with BP – an immediate suspension. In future, companies may be suspended between bi-annual reviews rather than waiting for these to take place.
Although FTSE has not said so specifically, a suspension is likely to be seen as a graver penalty than deletion.
BP’s exclusion from FTSE4Good is the latest in a series of penalties it has been dealt in the responsible investment sphere. Earlier this year the firm was dumped by the Dow Jones Sustainability Index, and saw its sustainability rating downgraded by Vigeo over ‘serious doubts raised on the sincerity of information released by the company on the level of security of its offshore facilities’.
Other companies deleted from FTSE4Good as a result of the latest review were: the UK-based construction firms Morgan Sindall and Taylor Wimpey, the auto-makers Bridgestone, United Parcel Service, DuPont, the Kirin drinks group and the engineering firm Kubota, both Japanese.
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