FTSE4Good Seeks a Middle Way with Its Exclusion Policy
Mark Makepeace of FTSE International is delighted that aspects of his ethical FTSE4Good index have been criticised by the CBI and Friends of the Earth.
He says: "Ours is not a green index. It is our attempt to include companies that support mainstream beliefs on what should constitute best practice in corporate social responsibility.
"As time goes on, and attitudes evolve, we may well raise the bar, particularly as far as high impact companies are concerned."
Areas such as the sectors to which banks lend may come under scrutiny at some point, together with close monitoring of performance data on the environmental front.
Makepeace agrees it may be relevant to assess the ways in which companies are allocating research and development spending.
He has personally driven FTSE's decision to start an ethical index: "I've supported Unicef projects for some time. I like the charity because its work is global, it encourages a self-help attitude and it helps children," he says.
Makepeace believes companies should be prepared to invest in communities which need help. FTSE itself hopes to give a $1m (E1.18m) portion of its FTSE4Good fees to the charity.
Makepeace concedes that the whole issue of which companies should be included in the new index was "a lot harder" than he expected.
From the outset the FTSE ethical committee, chaired by Mervyn Pedelty, Co-operative Bank chief executive, listened hard to the debate between the two sides of the Social Responsibility Investment camp.
One side refuses to invest in companies considered venal. The other is prepared to do so if such companies make enough effort to improve their practices.
The likes of Innovest (see below) believe that if companies get screened out, they have no incentive to improve themselves.
Advised by Eiris, FTSE ended up seeking a middle way. It decided to exclude tobacco producers, companies involved in the nuclear industry (including those mining uranium) and weapons manufacturers.
"We took the view that we would be a laughing stock if we didn't leave out these categories," says Makepeace.
"Over time, however, I'd like to think we might be able to include companies from all, or nearly all, sectors. Tobacco will always be hard, but, one day, nuclear energy might be seen as less evil than energy processes which throw off carbon dioxide. And you can't ignore the case for defence capabilities."
FTSE is proposing to include in its index companies such as BP, Shell and ICI, which are seen as high impact polluters. For good measure, BP has also been accused of undermining human rights by operating in Tibet.
Makepeace says FTSE currently checks out three socially responsible categories. First, it looks at environmental sustainability (covering policy, management systems and reporting); human rights (checking whether policy conforms with United Nations resolutions), and stakeholder relations (policy, management systems, performance and monitoring).
It feels that BP, Shell and ICI comply with these criteria. In contrast, Royal Bank of Scotland does not have a human rights policy for its operation in Indonesia, so it has been excluded. BG has been left out because it does not have a human rights policy for Egypt. …