FTSE4Good US Select Index Explained

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The FTSE4Good US Select Index is a stock market index that tracks the performance of companies listed on US exchanges that meet certain environmental, social, and governance (ESG) criteria. It's designed to provide investors with a way to invest in companies that are making a positive impact.

The index was launched in 2004 by FTSE Russell, a leading global index provider, and is calculated in partnership with ESG research firm, MSCI. It's one of the most widely followed ESG indexes in the US, with over $1 billion in assets tracking it.

The FTSE4Good US Select Index is made up of 300 companies that have passed a rigorous screening process, which assesses their ESG performance across various criteria. This includes their track record on issues like climate change, human rights, and board diversity.

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What Is The Index Series?

The FTSE4Good US Select Index Series is a collection of socially responsible stock indexes administered by the Financial Times Stock Exchange-Russell Group (FTSE). It highlights companies that score highly in measures of corporate social responsibility (CSR).

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The Index Series follows strict environmental, social, and corporate governance criteria. This makes it suitable for benchmarking purposes.

The FTSE4Good Index Series scores companies based on their performance relating to ESG pillars, themes, and indicators. Only companies that receive high ratings are included in the Index Series.

The Index Series is used as a tool in the creation of financial products, such as institutional and retail funds, exchange-traded funds (ETFs), and derivatives.

FTSE4Good Index Series

The FTSE4Good Index Series is a collection of socially responsible stock indexes that score highly in measures of corporate social responsibility. It's administered by the Financial Times Stock Exchange-Russell Group (FTSE) and has been around since 2001.

The indexes each follow strict environmental, social, and corporate governance criteria, making them suitable for benchmarking purposes and the creation of financial products. These products include institutional and retail funds, exchange-traded funds (ETFs), and derivatives.

The FTSE4Good Index Series is not a single index, but rather a collection of indexes with different geographic focuses. This includes indexes for companies in the United States, Australia, Japan, and Latin America, among others.

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The series is used as a tool for identifying environmentally and socially sustainable companies, as well as a benchmark index to track the performance of sustainable investment portfolios. Investors can use the index as a reference point for individual stock selection, such as by selecting investments from the indexโ€™s top holdings.

Some notable top holdings of the U.S.-based index include Apple Inc. (AAPL), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA), and Alphabet Inc. (GOOG).

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ESG Methodology

The FTSE4Good US Select Index uses a score-based methodology to determine the overall quality of a company's management of ESG issues. This methodology breaks down a total score and rates a company on three pillars and 14 themes using over 300 indicators.

Companies are rated on environmental, social, and governance issues. They receive a score and an exposure assessment based on their management of each pillar.

The three pillars are then broken down into themes, with companies receiving a score and an exposure assessment based on their management of each theme. Environmental themes include biodiversity, climate change, pollution and resources, supply chain, and water security.

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Social themes include customer responsibility, health and safety, human rights and community, labor standards, and supply chain. Governance themes include anti-corruption, corporate governance, risk management, and tax transparency.

Each theme contains 10 to 35 indicators, with an average of 125 indicators applied per company. This comprehensive approach ensures a thorough assessment of a company's ESG management.

Companies that operate in developed markets are considered for constituent selection if they have an ESG rating over 3.3, while companies operating in emerging markets must have a rating of 2.9 or higher. Conversely, developed market companies are removed if their rating falls below 2.9 while emerging market companies are removed if their rating drops under 2.4.

On a similar theme: Us Equity Market Index

Using the Index

Companies that score highly in measures of corporate social responsibility (CSR) are included in the FTSE4Good Index Series.

The index series has a strict set of environmental, social, and corporate governance criteria that make it suitable for benchmarking purposes.

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To be included in the index series, companies must have strong policies in areas such as respect for human rights, internal labor relations and workplace safety, lack of real or perceived corruption, and the environmental sustainability of their supply chains.

Companies are evaluated based on their efforts to reduce the production of fossil fuels and evolve their business into more environmentally friendly operations.

Oil and gas companies are not dismissed out-of-hand; instead, they are evaluated based on their efforts to reduce the production of fossil fuels and evolve their business into more environmentally friendly operations.

Tobacco companies and weapons manufacturers are categorically excluded from the index series on account of their business models.

The top 10 holdings of the U.S.-based index as of April 2023 included several well-known technology companies, such as Apple Inc. (AAPL), Microsoft Corporation (MSFT), NVIDIA Corporation (NVDA), and Alphabet Inc. (GOOG).

Investors can use the index as a reference point for individual stock selection, such as by selecting investments from the indexโ€™s top holdings.

Alternatively, investors can select products that use the FTSE4Good Index Series as an investment benchmark.

How the Index Works

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The FTSE4Good US Select Index is a socially responsible stock index that scores highly in measures of corporate social responsibility.

Companies are selected for inclusion in the Index based on their performance relating to environmental, social, and governance (ESG) pillars, themes, and indicators.

Only companies that receive high ratings are included in the Index, making it a valuable tool for investors looking to incorporate ESG considerations into their portfolios.

The Index uses a score-based methodology for constituent selection, meaning that companies are rated based on their performance in various ESG areas.

Investors can use the Index for individual stock selection or to gain benchmark exposure to ESG investing through mutual funds and ETFs.

The FTSE4Good Index Series is a collection of socially responsible stock indexes that score highly in measures of corporate social responsibility, providing a range of options for investors.

Companies that meet specific criteria designed to meet the needs of investors concerned about companies' environmental, social, and governance practices are listed in the series.

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Frequently Asked Questions

What is the FTSE4Good?

The FTSE4Good is a series of ESG (Environmental, Social, and Governance) indices launched in 2001 to help investors make informed, sustainable investment decisions. It provides a benchmark for responsible investing and promotes companies that prioritize ESG factors.

Matthew McKenzie

Lead Writer

Matthew McKenzie is a seasoned writer with a passion for finance and technology. He has honed his skills in crafting engaging content that educates and informs readers on various topics related to the stock market. Matthew's expertise lies in breaking down complex concepts into easily digestible information, making him a sought-after writer in the finance niche.

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