The contribution of the FTSE4Good Index to socially responsible investment
A FTSE Group case study

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Summary

Concepts:

Index, FTSE, investment, Indices, FTSE4Good, social responsibility, shares, criteria, environment, business, stock exchange, compare, funds, standard, economy.

Summary:

Individual investors and financial institutions need to compare alternative opportunities in order to make the 'best possible decisions' about purchasing and holding financial securities.

They also need to know that the financial securities they hold meet their individual investment criteria e.g. for high growth rates, low risk, or only in reputable, socially responsible companies.

This case study focuses on one of FTSE's key index series, the FTSE4Good Index Series.

Index values are used to show how a particular average fingure changes over time. For example, the FTSE 100 Index sets out the average figure for the value of a basket of the shares of the top 100 UK companies quoted on the London Stock Exchange (LSE). This index serves as a useful indicator of how the UK economy is performing. A rising index signals investors' increasing confidence in the outlook for business.

If the company cannot pay its debts from its own funds, creditors cannot force the owners to repay the money from their personal funds.

FTSE gains its revenue from selling licences to companies that wish to use selected indices to inform their own investment decisions and enhance their own management performance.

FTSE launched a new family of indices named FTSE4Good. These are designed to help create a global standard enabling investors to identify and measure the performance of companies who practice a recognised, acceptable standard and social behaviour.

Investors and other key stakeholders in companies are increasingly concerned that the companies in which they are involved behave in an ethical way. To be included in FTSE4Good index a company must meet a number of important criteria.

The creation of the new indices indirectly puts pressure on companies excluded from the index to change their ways and so become eligible for consideration for inclusion to the index.

Learning outcomes:

As a result of carefully reading this case study, students should be able to:

  • understand the importance of up-to-the-minute information in enabling financial decision making
  • know the use of indices in evaluating financial decision making
  • appreciate the importance of social responsibility in organisational activity
  • know that FTSE researches and assembles a variety of indices including the FTSE 100, FTSE All-Share Index and the FTSE4Good Index
  • understand the importance of the FTSE4Good Index as a catalyst for socially responsible business practice
  • be aware of the importance of environmental, human rights and social and stakeholder criteria in evaluating socially responsible business.

FTSE Group | The contribution of the FTSE4Good Index to socially responsible investment