Interactive Investor

FTSE launches range of indices that exclude sinner stocks

16th May 2023 09:36

Sam Benstead from interactive investor

The indexing firm said it was working with fund managers keen to release tracker funds for its new ‘sustainable’ baskets of UK shares. 

Index provider FTSE Russell has launched a new range of sustainable investment versions of its popular FTSE 100, FTSE 250 and FTSE 350 benchmarks.

The new indices will incorporate environmental, social and governance (ESG) factors to give investors a means of owning UK shares while meeting sustainable investing goals.

The FTSE UK ESG Risk-Adjusted Index Series applies a range of exclusions, reduces the carbon footprint of the index, and tilts the weights of the universe towards companies with better ESG characteristics, according to FTSE Russell.

Index exclusions focus on controversial weapons, thermal coal production, energy generation based on thermal coal, Arctic oil & gas exploration, oil sands and shale energy extraction and production, tobacco production and retail, and controversial conduct.

The index provider argues that its new index series improves the sustainable credentials of the stock basket, while also balancing risk and return.

“While evolving over time to ensure that it remains aligned with market and client expectations, its launch is a starting point for incorporating key ESG considerations into the flagship UK Series,” FTSE Russell said.

The FTSE 100 includes the largest 100 stocks in the UK, while the FTSE 250 counts the next biggest 250. The FTSE 350 combines the two indices.

While fossil fuels are not fully excluded, index level fossil fuel reserves exposure is reduced by 50%, resulting in large underweights to energy and basic materials industries.

Utilities and industrials are also underweighted due to the 50% reduction in carbon emissions exposure versus benchmark levels.

Aled Jones, head of sustainable investment solutions at FTSE Russell, said that FTSE Russell was working with fund management firms to launch tracker funds using their new indices.

Investors can already passively invest in the UK stock market while taking a sustainable investment approach.

For example, the £380 million Legal & General Future World ESG UK Index Fund tracks the Solactive L&G Enhanced ESG United Kingdom Index, investing in 319 shares for a fee of 0.52%.

BlackRock also runs the iShares MSCI UK IMI ESG Leaders ETF, which tracks the MSCI UK IMI Country ESG Leaders 5% Issuer Capped Index. It contains 145 companies and has just 1% invested in the energy sector. It charges 0.15% in fees.

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