Companies will have to conform to new standards on tackling climate change to keep their places in the FTSE’s index of socially responsible investments.
From next year companies in the FTSE4Good index, which includes 52% of UK firms, will have to sign up to the requirements, which include a commitment to reduce direct carbon emissions every two years.
High impact sectors such as airlines and electricity firms will be asked to comply with the new rules by next January. All members of the index must follow the new rules by July 2009.
Companies will also have to show evidence of action to tackle climate change at board level.
Will Oulton, FTSE Group’s head of responsible investment, said: “This is about a change in management practice and giving firms a best practice model to position and react to climate change.”
Members of the FTSE4Good index will have to show that a senior board member has direct responsibility for overseeing climate change strategy, disclosing current carbon emissions and publishing a carbon reduction target.
FTSE’s responsible investment unit is currently working with 62 of the 293 UK index members identified as having the biggest impact on climate change to help prepare them for the new rules.
Mr Oulton added: “We are asking companies to reduce their direct carbon emissions by 5% every two years, or reduce by an equivalent amount if they can’t do that directly, through a transformational initiative, for example by switching to a renewable energy source.”
At the launch of the new standards in London last night, Environment Secretary David Miliband said: “High financial returns can go hand in hand with respect for human rights and the preservation of the planet’s resources.”
The climate change criteria were drawn up by FTSE in consultation with the Climate Group, WWF, the Carbon Trust and the Institutional Investors Group on Climate Change.
The FTSE4Good index was originally set up in 2001 to measure companies against five socially responsible investment criteria, including environmental sustainability, stakeholder relations, upholding universal human rights, good labour supply chain relations, and an anti-bribery stance.
A total of 916 FTSE firms out of 2,396 (38%) globally qualify for the index.