The Financial Performance of the FTSE4Good Indices

This paper examines the financial performance of the FTSE4Good indices; the indices include companies from different geographical areas on the basis of pre-determined social responsibility criteria: currently environmental sustainability, relationships with stakeholders, attitudes to human rights, supply chain labour standards and the countering of bribery. The results indicate that over the period of analysis from 1996 to 2005 these indices outperformed their relevant benchmarks. However, most of this outperformance was due to risk differences between the FTSE4Good indices and their benchmarks. In addition, much of the outperformance arose in the period before the indices could be used by practitioners. Nevertheless, the results suggest that investors who invest in a portfolio of companies that satisfy FTSE4Good's corporate social responsibility criteria do no worse than their counterparts who do not follow a socially responsible strategy when purchasing equities. Copyright (C) 2007 John Wiley & Sons, Ltd and ERP Environment.