FTSE to Launch Socially Responsible Benchmarks By John Spence March 5, 2001

FTSE, the index provider jointly owned by the London Stock Exchange and the Financial Times, announced that it plans to launch a new series of indexes for socially responsible investment (SRI). Called the FTSE4Good family, the indexes will go live in June 2001.

There will be four indexes in all covering the following regions: the U.K., the U.S., Europe, and the globe. For each region, there will be two indexes - a tradable index of the top 100 (by market capitalization) socially responsible companies and a broader benchmark index for which the number of constituents will not be fixed.

"The FTSE4Good indices are another indication that the investment community is starting to integrate socially responsible issues into their thinking," said Peter Webster, Executive Director of Ethical Investment Research Service (EIRIS), the U.K.-based firm that is helping FTSE screen companies for the index.

The specific criteria for inclusion in the indexes are still being reviewed, and FTSE said the methodology would likely be published in May, along with the index constituents.

However, FTSE and EIRIS are examining companies' track records in the following areas:

• impact on the environment
• maintenance and protection of human rights
• stakeholder relations
• impact on society at large

FTSE said that the new index series was designed for use as a benchmark for index funds and exchange-traded funds. U.K.-based Close Fund Management plans to launch a fund tracking the FTSE4Good U.K. Index.

The FTSE announcement is further evidence of the growing trend toward SRI. The Dow Jones Sustainability Group Indexes, which screen companies according to stances on economic, environmental and social developments, have been around since the beginning of 1999. According to Social Investment Forum, a national nonprofit membership organization that promotes socially responsible investing, over $2 trillion is invested in the U.S. in SRI.

It Pays to be Good

The Domini Social Equity Fund (trading symbol: DSEF) is one of the oldest and best-known socially responsible index funds. The fund seeks to track the Domini 400 Social Index (DSI) - an index comprised of companies that pass multiple broad-based social or ethical screens - and has an expense ratio of 0.96%. It was launched in June of 1991, and boasts higher returns than the S&P 500 index since the fund's inception.

	Domini Social Equity Fund returns	S&P 500 returns
1 month	4.40%	3.55%
3 month	-5.18%	-4.14%
1 year	-6.19%	0.90%
3 year annualized	12.35%	13.15%
5 year annualized	18.42%	18.36%

Source: Morningstar, returns as of 1/31/2001

However, it should be noted that comparing socially responsible funds to the S&P 500 as a benchmark index isn't always appropriate. For example, socially responsible funds experienced eye-popping returns in the late 1990s since they were so heavily weighted in technology companies like Microsoft.

Something Different

In December, Summit Mutual Funds launched the Total Social Impact (TSI) Fund, which puts a new twist on social investing. According to Steven Dillenburg, who co-manages the fund's daily operations with and David Weisenburger, the fund is designed to attract more "mainstream" investors than a pure socially responsible fund.

The TSI Fund invests in all of the stocks in the S&P 500, but it weights the companies differently according to their Total Social Impact rating. TSI rating reflects the company's scoring on a series of benchmarks corresponding to each of its stakeholders, created by the Caux Principles - a statement of business ethics developed by international corporate leaders.

Dillenburg says the the fund is an alternative for investors who are concerned about ethical business practices, but don't want to invest in socially responsible funds that automatically exclude any companies involved in "sin" sectors: tobacco, military technology, etc.

The fund has an minimum initial investment of $5,000 and an expense ratio of 0.75%.

On a Shoestring

Some of the most inexpensive socially responsible index funds are provided by the usual suspects. Vanguard's Calvert Social Index Fund has an expense ratio of 0.25%, while TIAA-CREF's Social Choice Equity Fund charges 0.27% per year in management fees.