FTSE4Good 25th anniversary report

In 2001, we launched the FTSE4Good Index Series at a time when sustainable investment was barely on the financial sector’s radar.  Socially responsible investing was a niche interest, almost entirely restricted to a small part of the retail market. There was limited corporate reporting of ESG data and almost no regulation compelling disclosure in the marketplace.

Structured approach to ESG disclosure

The FTSE4Good index methodology marked an important step in transparency and standardisation to ESG investing by moving beyond values-based approaches to a structured, materiality weighted assessment of each company’s performance across defined themes and indicators. Its systematic and transparent framework was easily understood by investors and companies alike, while FTSE’s trusted brand helped elevate sustainable investment within mainstream markets and enhance its credibility

An evolving sustainable investment market

The decade following the launch of FTSE4Good was marked by voluntary initiatives around sustainable investment, including the establishment of the Principles for Responsible Investment in 2006 and FTSE’s collaboration with Impax Asset Management to launch the Green Revenues Classification System in 2008. During the 2010s, investor led initiatives and regulation accelerated. These included the launch of the Sustainability Account Standards Board in 2011 and the Task Force for Climate-related Financial Disclosures in 2015, alongside EU led disclosure requirements, driving growth in ESG ratings, indices and investment strategies. Throughout this period, the FTSE4Good index family has provided a consistent approach to capturing corporate sustainability performance. It has met growing investor demand for the integration of ESG factors into passive index strategies – the preferred sustainable investment approach of 61% of asset owners, according to our latest SI annual asset owner survey – based on a clear and transparent scoring methodology.

The FTSE4Good Index Series helps investors express their views on corporate sustainability performance and provides a key tool to support engagement with companies to improve that performance.

• The FTSE4Good indices and associated index families have attracted a steadily increasing volume of assets since their launch. Around US$15.6 billion of assets are invested in products or strategies that track or are benchmarked to them.
• Companies have improved their sustainability performance as the FTSE4Good threshold has risen. Average sustainability performance across index constituents has improved as companies have worked to enter or remain in the indices as their requirements have become evolved.
• The indices have delivered consistent performance, broadly in line with the wider market. The FTSE4Good indices were not designed to deliver outperformance, but performance in line with their benchmarks. Periods of under- or overperformance have been driven by changing sector weightings.
• FTSE4Good indices have been adopted around the world. FTSE Russell has partnered with institutional investors and national exchanges to launch index variants in countries such Japan, Malaysia, and Taiwan.
• The index family evolves to meet changing market requirements. The index methodology has been regularly updated to reflect developments in corporate sustainability practice, disclosure and data availability and to meet changing investor needs.

This 25-year milestone offers an opportunity to reflect on the evolution of the FTSE4Good Index Series and to look ahead to its future development.