FTSE Russell has launched a series of ESG-risk adjusted indexes as part of the continued expansion of its multi-asset ESG and climate index product range.
The FTSE UK ESG Risk-Adjusted Index Series applies product and conduct exclusions and significantly reduces the carbon emissions and reserves exposure of the index, compared with the benchmark.
It also tilts the weights of the universe towards companies with better ESG characteristics.
The new index series includes ESG adjusted variants of the flagship FTSE 100, FTSE 250, FTSE 350 and FTSE All-Share indices.
Risk and return characteristics are balanced with ESG characteristics to provide an investible ESG alternative to the standard UK equity index series.
Index exclusions focus on controversial weapons, thermal coal production, energy generation based on thermal coal, Arctic oil and gas exploration, oil sands and shale energy extraction and production, tobacco production and retail, and controversial conduct.
Fossil fuels are not fully excluded, index level fossil fuel reserves exposure is reduced by 50%, versus the benchmark, resulting in large underweights to, for example, energy and basic materials industries.
Utilities and industrials are also underweighted due to the 50% reduction in carbon emissions exposure versus benchmark levels.
UK companies achieve relatively high ESG scores. For example the aggregate ESG score of the FTSE 100 is almost 10% higher than the FTSE Developed ESG score.
Due to the already high starting point, the ESG target of the UK ESG Risk-Adjusted indices is 5% above the aggregate benchmark ESG levels, based on FTSE’s ESG scores, to ensure that a consistently high level is achieved.
Arne Staal, CEO of FTSE Russell, said: “We have created the FTSE UK ESG Risk-Adjusted Index Series to further increase the options for clients incorporating ESG and climate objectives into UK equity portfolios.
“This launch, while continuing to expand our multi-asset ESG and climate index range, is also our first ESG adjusted version of the FTSE 100, and something our customers have been asking for.”