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The Actuary The magazine of the Institute & Faculty of Actuaries

New qualitative index

The growing number of investors wishing to measure and analyse non-financial risk will soon be able to use an innovative new tool from FTSE Group, a global index provider, and Institutional Shareholder Services (ISS), one of the premier corporate governance ratings agencies. The two companies announced this month that they will collaborate to create an objective and transparent set of global corporate governance indexes. The collaboration will allow investors to identify corporate governance risks more easily across a global portfolio and provide standard and customised benchmarks, which reduce investors’ exposure to companies with poorer corporate governance performance.

This initiative, which will be launched in phases beginning in summer 2004, has been developed in response to the growing concern among institutional investors about the management of risks associated with poor corporate governance when investing in global equities.

FTSE and ISS have identified a set of globally accepted corporate governance principles, which will be applied 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. The design and methodology of the new index will draw on ISS’s experience in developing the successful corporate governance quotient (CGQ) database and ratings system, which ranks the corporate governance practices of 7,500 companies worldwide. ISS’s CGQ is used by institutional investors as a governance-based risk-assessment tool.