Financial returns – with less risk – from FTSE4Good


Investors are likely to be better off – or at worst, neutral – investing in CSR-embracing companies says a new report on the performance of the FTSE4Good indices, published today by ACCA (the Association of Chartered Certified Accountants).

The FTSE4Good indices aim to expose investors to companies that meet globally recognised corporate social responsibility (CSR) standards, and the ACCA report – called FTSE4Good: perceptions and performance – finds that there is little evidence of underperformance for these indices when compared with their mainstream equivalents from 1996 to 2003 – a time covering both bull and bear markets. Indeed, the report states that since its launch in July 2001, FTSE4Good has gained higher financial returns with less risk relative to other indices.

But the research report also suggests that the FTSE4Good initiative may be muddying the waters of socially responsible investment due to the high proportion of FTSE100 companies qualifying for inclusion – some 80 per cent of companies in July 2005.

Including candid views about FTSE4Good from a selection of constituent companies and those involved in its operation, the research report addresses two fundamental questions:

How have the FTSE4Good indices performed since their 2001 launch?
What effect are the FTSE4Good indices having, particularly on companies’ CSR activities?
FTSE4Good: perceptions and performance also shows that FTSE4Good constituent companies think inclusion in the indices helps to improve relationships with a variety of stakeholders, including environmental and human rights groups, pension companies and fund managers.

John Davies, Head of Business Law at ACCA, said: “This report is a unique insight into both the performance of the indices and into what FTSE4Good means to investors. What’s clear from the report is that FTSE4Good has helped these companies improve relationships with a wide range of stakeholders, including government. And despite some scepticism, a majority of companies also said that having to comply with the FTSE4Good criteria had a significant impact on their reporting and management procedures.”

Other main findings of the report are:

For FTSE4Good investors, the indices have experienced a wide range of performance since its introduction five years ago. A number have done well (FTSE4Good US and FTSE4Good US100), earning investors a higher return for a lower level of risk.
High values are documented for the UK, European and Global indices. By contrast, the correlations between the UK and the US indices are much lower.
The behaviour of the returns series for the FTSE4Good indices varied after the indices were launched.
Stakeholders views on the performance of the FTSE4Good indices were mixed, and interview findings suggest that those closely involved with the development of the indices were positive about their achievements.
Company respondents were more sceptical abut the effect of the FTSE4Good indices on their activities, although they were conscious of a possible negative impact on reputation if they did not maintain their membership.
Some respondents to the questionnaire expressed a desire for FTSE4Good to become more active in working with companies in order to help them operate in a more ethical fashion.
The findings also suggest that FTSE4Good is regarded as having an impact on corporate relationships of listed companies and on their internal processes, being viewed as a convenient tool for the socially responsible investment community, and also to influence the conduct of companies.
Notes to Editors

ACCA is the largest and fastest-growing international professional accountancy body and has over 105,000 members and 240,000 students in over 170 countries.
ACCA experts are available for media comment on all aspects of UK and international accounting, auditing, tax, small business, environmental reporting, corporate governance, business law and public sector finance.
FTSE4Good Index Series is calculated by FTSE Group, the award-winning index provider. The series contains nine equity indices which cover developed global markets.

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