Explain the factors or scoring criteria in FTSE4 Good Index series ESG risk ratings?
The FTSE4Good Index Series is a group of indices that measure the performance of companies that meet certain environmental, social, and governance (ESG) criteria. The FTSE4Good ESG Ratings are a set of scores that assess the level of ESG risk of companies included in the index. The ESG risk rating is based on a company's exposure to ESG risks and its management of those risks.
The following are the factors or scoring criteria used in the FTSE4Good ESG risk ratings:
1. Environmental: This category includes factors such as greenhouse gas emissions, waste management, water use, and biodiversity. Companies are assessed on their environmental impact and how they manage environmental risks.
2. Social: This category includes factors such as labor standards, human rights, supply chain management, and community relations. Companies are assessed on their impact on society and how they manage social risks.
3. Governance: This category includes factors such as board structure, executive compensation, shareholder rights, and anti-corruption measures. Companies are assessed on their corporate governance practices and how they manage governance risks.
Each factor is further broken down into sub-factors, and each sub-factor is assigned a weight based on its relative importance. The scores for each sub-factor are then aggregated to produce an overall score for each category and an overall ESG risk rating for the company. The ratings range from 0 to 5, with 5 being the highest rating, indicating that a company has low ESG risk.