FTSE KLD Select Social Index
Methodology
Index Construction
To construct the Index, KLD evaluates the social and environmental performance of companies in the universe by analyzing community relations, diversity, employee relations, human rights, product quality and safety, environment and corporate governance. KLD assigns ratings based on specific criteria within each issue.
The eligible universe of companies for the SSI is the FTSE All-World US Index.
Company ratings are translated into Issue Scores that are aggregated into overall Company Scores. An optimization process uses the Company Scores to determine Index holdings and weights. The Index controls financial risk by constraining expected tracking error to less than 200 basis points relative to the FTSE US 500 Index.
The Select Social Index concentrates weights of holdings in companies with strong social and environmental performance. Companies with high Company Scores have higher weights and companies with low Company Scores have lower weights compared to the FTSE US 500 Index.
Index Maintenance
The FTSE KLD Select Social Index is reconstituted annually and rebalanced quarterly. At each rebalance, the Index weights are adjusted but no additions or removals take place. KLD only removes companies between reconstitutions if a company ceases to trade. The Select Social Index Committee makes the final decision on all changes to the Index.
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