FTSE Russell, a global index provider, has announced changes to both the constituents and the ratings methodology of the FTSE4Good indices following a semi-annual review of the index series.
Volkswagen AG will be removed from the FTSE4Good Indices following the scandal over their misrepresentation of vehicle emissions.
The December semi-annual review sees 40 companies being added to the FTSE4Good Global Index, while 32 companies are removed. This reflects the impact of FTSE Russell’s new environmental, social and governance (ESG) ratings methodology.
The FTSE4Good Index Series is designed to help investors integrate ESG factors into their investment decisions. The indices identify companies that better manage ESG risks and can be used as a basis for tracker funds, exchange-traded funds, structured products and as performance benchmarks.
Most notable has been the news that Volkswagen AG will be suspended from the FTSE4Good Index Series. According to FTSE Russell, the company is deemed to have misled government agencies and consumers over vehicle emissions through the application of software designed to circumvent test requirements. The suspension follows an assessment of Volkswagen through FTSE’s Controversy Monitor which considers the significance of crises or controversies, how the company has responded, and the extent to which it impacts wider the industry.
Companies suspended from the FTSE4Good Index Series are not eligible for re-inclusion for a minimum of two years. The suspension, alongside the wider index additions and deletions, will be implemented in late December.
The indices’ methodology change has included lifting the standards required for companies to maintain inclusion. Existing constituents not keeping pace with the new criteria were first given notice over 12 months ago, and the removals this December represent the first of a series of phased deadlines that will remove companies failing to meet the new index requirements.
The largest number of additions at this review is from the USA, contributing 16 companies, followed by the UK and Japan with 4 companies each.
The ESG Ratings are used by investors who wish to incorporate ESG factors into their investment decision making processes, or as a framework for corporate engagement and stewardship.