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The FTSE4Good Index and Corporate Social Responsibility

Introduction

As the market is increasingly global in its outlook and impact, many business leaders have come to believe that it is important for them to demonstrate a real commitment to corporate social responsibility. Far from harming a company’s prospects, a commitment to the principles of corporate social responsibility may enhance their reputations and reduce their business risks. The growth of socially responsible investment policies (SRI) among many large investment institutions has also given impetus to the need to understand the relationship between social responsibility and shareholder value.

The FTSE4Good Indices have been created as a means of meeting the needs of SRI and of contributing to the ongoing debate on corporate social responsibility. In dialogue with companies, investors, governments, non-governmental organisations and with campaign groups, the debate about corporate responsibility is being taken out of the realm of theory and translated into agendas for business and into action. In the course of the general discussion on corporate social responsibility, many voices have been heard. Much common ground and many shared goals have been discovered concerning the principles of corporate social responsibility and the actions that companies should take to uphold those principles. FTSE has listened carefully to this debate and aims to express the consensus of opinion on the issue of corporate social responsibility within the FTSE4Good indices.

The principles of corporate social responsibility have been developed over a number of years and are still evolving. Many governments and organisations have contributed to the discussion and have undertaken extensive international research and consultation in order to arrive at these basic principles. The concept of the FTSE4Good Indices has been under development for several years and was put forward to the public in February 2001. The first companies to be included in the indices were announced on 10 July 2001.

Sources

FTSE has identified the common themes of ten sets of declarations drawn up by governmental bodies, non-governmental organisations and by business organisations. The themes that these groups have identified have been used to create the criteria used by FTSE in selecting companies to be included in the FTSE4Good indices.

The philosophy and criteria of FTSE4Good are based on the principles outlined by the following organisations and documents. The full texts of these principles can be found through links available at www.FTSE4Good.com.

Governmental Principles

The Universal Declaration of Human Rights (1948) – Agreed in 1948, this declaration of the General Assembly of the United Nations provides the foundation for all subsequent human rights agreements, including those more directly aimed at business.

The OECD Guidelines for Multinational Enterprises (1976) – Adopted by 33 countries, these guidelines cover the issues of disclosure, employment and industrial relations, environment, combating bribery, consumer interests, science and technology, competition and taxation.

The UN Global Compact (1999) – Implemented in 1999, this compact was a result of consultation between the United Nations and business to uphold nine principles in the area of human rights, labour standards and environmental practices. Non Governmental/Business Principles

CERES (Coalition for Environmentally Responsible Economies) (1989) – A coalition of environmental, investor and advocacy groups working together for a sustainable future, CERES has issued nine guidelines for sustainability including: protection of the biosphere, environmental restoration; and management commitment.

Amnesty International Human Rights Principles for Companies – This set ofnine principles includes health and safety, freedom from slavery and security,and are closely linked to the Universal Declaration of Human Rights.

The Caux Round Table Principles for Business (1994) – A coalition of business leaders from Europe, Japan and the United States, the Caux Round Table believes that the world business community must play an important role in
improving economic and social conditions around the world. The Caux Round Table is concerned with the General principles of human dignity and how to apply them practically.

The Global Sullivan Principles (1977) – Based on self-help, these principles are acknowledged to be one of the most effective efforts to increase corporate social responsibility throughout the world.

Ethical Trading Initiative- The Base Code (1998) – The ETI is an alliance of companies, NGOs and trade union organisations committed to working together to identify and promote good practice in the implementation of
codes of labour practice.

Social Accountability 8000 (SA 8000) (1997) - Based on a number of existing international human rights and labour standards, SA8000 provides “transparent, measurable, verifiable” standards for certifying the performance
of organizations in nine areas: 1) child labour; 2) forced labour; 3) health and safety; 4) compensation; 5) working hours; 6) discrimination; 7) discipline; 8) free association and collective bargaining; and 9) management systems.

Global Reporting Initiative (GRI) Sustainability Guidelines (1999) - CERES and the United Nations Environment Programme (UNEP) have formed a partnership to encourage NGOs, business associations, corporations and other stakeholders from around the world to undertake sustainability reporting. The template includes a CEO statement and policies and management systems.