Industry Updates

FTSE Russell unveils FTSE 100 ESG index as part of new UK suite

‘There are specific clients planning to launch products off the back of this’

Jamie Gordon

FTSE 100 index

FTSE Russell has launched a UK ESG suite covering its flagship FTSE 100, 250, 350 and All-Share benchmarks.

The risk-adjusted series targets a 50% reduction in Scope 1 and 2 emissions and a 50% cut to fossil fuel reserves versus parent benchmarks.

Companies are excluded from the benchmarks based on involvement in controversial weapons, thermal coal, energy produced using thermal coal, arctic oil and gas exploration, shale energy extraction, tobacco and controversial conduct.

Aled Jones, head of sustainable investment solutions at FTSE Russell, told ETF Stream four companies are currently excluded from the FTSE 100 parent index and over 100 companies from the FTSE All-Share benchmark, with this subject to change over time.

The index provider noted the FTSE 100’s aggregate ESG score is almost 10% higher than that of the FTSE Developed index. The new range targets a 5% ESG score uptick versus the parent benchmarks.

The indices mark FTSE Russell’s first ESG suite dedicated to the UK and continues the firm’s ambition to expand its single-country ESG and climate range.

“Clients asked us to build indices which closely resemble the parent indices, with the number of constituents kept as similar as possible, given the constraints that get applied,” Jones said. “There are specific clients planning to launch products off the back of this.”

He added the index suite implements ESG criteria in line with single materiality, addressing the issues as a source of long-term investment risk.

“The UK is a challenging market from an ESG perspective. There are many companies with exposure to fossil fuel reserves or that make products ESG investors might challenge, which relates to the exclusions we apply.

“This is ESG 1.0 for the UK series,” he said. “You cannot just build these kinds of products and leave them. You have to continue to enhance and evolve them as the market develops.

"If clients call for further exclusions or adjustments, we will look to integrate these suggestions over time.”

The new indices come within a year of the 40th anniversary of the FTSE 100. Last year, the firm launched the FTSE Global Technology SuperTheme index as part of a four-strong range more than a year ago alongside a six-strong suite of climate benchmarks.

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