Index provider FTSE has teamed up with US governance ratings group ISS to provide corporate governance indices. “Investors will now have the option of deciding how to manage corporate governance risks within their benchmarks,” says FTSE chief executive Mark Makepeace.
FTSE and ISS, Institutional Shareholder Services, say the indices would allow investors to “identify corporate governance risks more easily across a global portfolio”. They would provide standard and customised benchmarks, to cut investors’ exposure to companies with poor corporate governance performance.
A FTSE spokeswoman says: “We had a lot of institutional support during the feasibility stage of the project, and are confident that the products will be used widely when they are launched later this year.”
The cooperative venture, to be launched in phases beginning in summer 2004, was in response to growing concern from institutional investors. The companies have identified a set of globally accepted corporate governance principles, which will be used to rate over 7,000 companies within the FTSE Global Equity Index Series.
These ratings will enable investors around the world to compare the companies within global portfolios using a single, integrated index.
ISS vice chairman Jamie Heard says: “With this joint initiative we will provide a standard in the assessment of corporate governance risks globally and create a useful set of measurements for the worldwide asset management community.”
Nick Bradley, European practice leader of Standard & Poor’s governance service, is positive about the launch. “I think it’s to be welcomed,” he says, pointing out that it was a sign that investors were taking the subject seriously. He adds S&P is also looking at the possibility of some form of governance index and was in the process of evaluating market demand – though there were no immediate launch plans.