FTSE index launches climate change criteria

Businesses that fail to develop strategies to limit their greenhouse gas emissions could find it harder to attract investment capital after the FTSE Group last week launched new criteria for its CSR index that will exclude firms that fail to do enough to tackle climate change.

The new criteria were added to the increasingly influential FTSE4Good Index, which just celebrated its fifth anniversary and provides real-time indices designed to reflect the performance of socially responsible equities and offer investors an independent way of identifying companies with good CSR records.

The criteria - which oblige firms to disclose their GHG emissions, and develop and successfully execute policies for reducing emissions – will be rolled out over the next two years with the first deadline for compliance coming in January 2008.

The new standards will initially effect just over 250 of the companies on the index which have been identified as having the highest impact on climate change, such as energy, oil and gas, mining and aerospace firms. The FTSE Group said that of these companies less than 50 would currently meet the criteria and as such it will work with them to ensure they are aware of the changes required.

The organisation also said that these criteria were just a "first step" and indicated that it planned to introduce far more stringent criteria - such as insisting companies publish a GHG reduction target and develop strategies to limit suppliers' emissions - and extend them to cover other medium impact industries such as consumer electronics and house builders.

Mark Makepeace, chief executive of FTSE Group said the move highlighted the company's commitment to keeping the criteria governing the FTSE4Good Index Series in line with CSR best practice. "Climate change is an important issue for companies and investors alike, and investors understand these criteria will make an important contribution to helping companies manage their risks," he said.

Mark Kenber, policy director at The Climate Group, which helped with the development of the criteria argued that not only would they help drive climate change concerns further up the business agenda but they could also help deliver business benefits to those firms that comply with the standards. "We believe incorporating sustainable behaviour into business practice will deliver long term benefits to stakeholders," he said. "Clearly a lot of companies will have to work hard to meet these new criteria but we are convinced that their efforts will bring positive impacts, both economic and environmental."

Inclusion on the index is increasingly highly regarded by investors, according to a spokesperson for the FTSE Group. "One company recently said that it was contacted by 38 different fund managers when they entered the index," she said.

In related news, the US-based Ceres group of environmentally sustainable investors this week attempted to drive global warming further up the investment agenda with the publication of a new Climate Watch list designed to name and shame those firms that fail to respond to shareholder inquiries about their climate change policies.

The first ten companies on the list are: banking giant Wells Fargo; energy firms TXU, Dominion Resources, and Allegheny Energy; coal companies Massey Energy and Consol Energy; oil and gas giants ExxonMobil and Conoco Phillips; insurance firm ACE; and retail firm Bed Bath & Beyond.

New York City Comptroller William Thompson Jr., whose office filed resolutions with electric power and coal companies for them to release their climate change policies, said that climate change now posed a significant business risk and that investors needed to know what firms were doing to tackle the problem in order to make informed investment decisions.

"Companies in every industry, especially energy sectors, must act now to assess and mitigate climate change risks," he said. "To enable investors to make informed investment decisions, companies must provide full and transparent disclosure of the actions they are taking to address the risks and opportunities of climate change."

The latest developments further underline the growing importance of environmental issues to institutional investors and come just days after an ethical investment fund from the Co-op was judged to be the best performing unit trust in the UK last year.