The FTSE4Good Effect: The Impact of Responsible Investment Indices on Environmental Management

43 Pages Posted: 30 Nov 2011 Last revised: 19 Dec 2015

See all articles by Craig Mackenzie

Craig Mackenzie

University of Edinburgh - Business School; Scottish Widows Investment Partnership

Bill Rees

University of Edinburgh - Accounting and Finance

Tatiana Rodionova

University of Edinburgh - Business School

Date Written: March 8, 2012

Abstract

This paper provides results consistent with the proposition that engagement by and threat of deletion from a responsible investment index motivated persistent improvements to corporate environmental management practices, especially for firms where the threat of exclusion from the index was likely to be costly. We use the natural experiment provided by the FTSE4Good upgrade of their environmental management criteria in 2002 when they engaged with index member firms that would not meet the new requirements but did not engage with non-member firms that would similarly fail. By 2005 49% of the 388 large and internationally diverse firms that had received engagement and been threatened with exclusion from the FTSE4Good index had complied, as opposed to 23% of the 658 firms which were not subject to engagement or potential exclusion. This result is statistically significant even after controlling for environmental risk, industry, country, governance and financial performance. Further results indicate that the effect of FTSE engagement produces a difference in compliance which persists for at least five years.

Keywords: Corporate Governance, Corporate Social Responsibility, Environmental Management, FTSE4Good, Investor Engagement, Responsible Investment Indices

JEL Classification: G20, G39, M14

Suggested Citation

Mackenzie, Craig and Rees, William and Rodionova, Tatiana, The FTSE4Good Effect: The Impact of Responsible Investment Indices on Environmental Management (March 8, 2012). Available at SSRN: https://ssrn.com/abstract=1966474 or http://dx.doi.org/10.2139/ssrn.1966474

Craig Mackenzie

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

Scottish Widows Investment Partnership ( email )

Edinburgh One
Morrison Street
Edinburgh, EH3 8BE
United Kingdom

HOME PAGE: http://www.swip.com

William Rees

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
+44 131 651 5244 (Phone)

HOME PAGE: http://www.business-school.ed.ac.uk

Tatiana Rodionova (Contact Author)

University of Edinburgh - Business School ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
212
Abstract Views
1,744
rank
146,233
PlumX Metrics