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Index provider offers new global rating system

May 2011

A new ratings system scoring companies on their environmental, social and governance (ESG) practices has been created by the FTSE4Good index series.

The new service for investors and asset managers provides, in FTSE’s words, a ‘comprehensive, transparent and objective system’ covering criteria for more than 2000 firms worldwide.

Under the ESG Ratings system, indexed companies will be given an overall score, divided into individual environmental, social and governance categories, ultimately split into six ‘themes’ – environmental management, climate change, human and labour rights, supply chain labour standards, corporate governance and countering bribery.

The ratings are ‘risk-relative’, signifying that businesses in industries with high ESG risks, such as energy and mining, will have to achieve more to obtain a high score.

FTSE says the tool will be useful for many purposes, including portfolio management, manager selection, company engagement, risk management and ESG benchmarking.

The ratings will be reassessed twice a year by Eiris and overseen by an independent committee of experts from the investment community, academia, business, unions and NGOs.

Mark Makepeace, the FTSE Group chief executive, said: ‘With the launch of the FTSE4Good ESG Ratings we are building on ten years of FTSE4Good index experience. The new ratings service provides an easy-to-use and objective measure of corporate ESG practice and risk.’

The first ratings under this system give the French digital media company Vivendi and the UK-based insurer Aviva the highest score in Europe, followed by companies including ABB, BT, Diageo, Nokia and Norsk Hydro.

In terms of sectors, the best performers include Israel’s Bank Hapoalim and Australia’s Westpac (banking); Sweden’s Assa Abloy (construction); the UK’s Provident Financial (financial services); France’s BIC (household goods); Australia’s Mirvac Group (real estate), and Spain’s Inditex (retail).

On a country basis, Norway, the Netherlands and Sweden are by far the best performers based on their companies’ average ESG rating, and Far Eastern countries, Israel and the US are among the worst.

All European countries, except Austria and the Irish Republic, score above the global average.

The ESG Ratings system will complement rather than replace measures at present used by the FTSE4Good Policy Committee at the index’s twice-yearly reviews.

FTSE’s UK top ten
Ratings out of five:

Aviva, insurance, 5
BT Group, telecommunications, 4.8
Capita Group, industrial goods and services, 4.8
Diageo, food and beverage, 4.8
RSA Insurance Group, insurance, 4.8
Northumbrian Water, utilities, 4.7
GlaxoSmithKline, healthcare, 4.6
Lloyds Banking Group, banks, 4.6
National Grid, utilities, 4.6
Unilever, food and beverage, 4.6
WPP, media, 4.6




FTSE Group | Global | Sustainability

Further Information
http://ethicalp.com/esgrate
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