Atsuhito Mori
- FTSE Blossom world & world sector relative launched: FTSE Russell expands its ESG index framework globally with two new sustainable investment indices.
- Clear ESG scoring for Inclusion: Companies must meet minimum ESG thresholds to be included, with rules ensuring transparency and risk control.
- Driven by investor demand: As ESG investing grows worldwide, FTSE Blossom’s expansion supports investors seeking sustainable, reliable equity portfolios.
FTSE Blossom is FTSE Russell’s flagship sustainable equity index series in Japan—and now it’s going global.
In January 2025 we launched two new index series that apply the Blossom methodology to the global equity universe—the FTSE Blossom World index series and the FTSE Blossom World Sector Relative index series. Each index series contains four regional equity indices.
Read on for more on how and why we’re growing the Blossom index family in this way.
A Japanese success story
Since 2017, Japan’s Government Pension Investment Fund (GPIF), the largest pool of retirement savings in the world[1], has been a big player in the environmental, social and governance (ESG) investment world.
“GPIF believes that it is vital to minimise negative externalities by integrating ESG factors into the investment process, in addition to improving the governance of investee companies, to ensure its portfolio’s investment returns over the long term,” GPIF’s president, Norihiro Takahashi, said at the time.
By building ESG scores into its security selection process, GPIF’s aim was (and is) to reward companies that achieve above-average performance in a data-based sustainability framework, such as the FTSE Russell ESG data model (see below).
Those with high ESG scores obtain entry to flagship sustainability indices, facilitating increased investment flows (since GPIF runs large funds tracking these indices). At the same time, ESG laggards face potential exclusion from the indices.
When selecting its ESG index partners, GPIF was also mindful of investment risk and performance relative to the capitalisation-weighted market benchmark.
For the FTSE Blossom Japan index, which we launched in 2017, we therefore matched the overall industry weights to those of the broader Japanese equity market. In the FTSE Blossom Japan Sector Relative index, launched in 2022 and used by GPIF to underlie a new passive fund, we extended this approach to ensure sector neutrality[2].
As at end-March 2024, GPIF had invested nearly 3 trillion yen ($19.8bn) in two equity portfolios tracking the FTSE Blossom Japan index and the FTSE Blossom Japan Sector Relative index, respectively[3].
Though past performance is not a guarantee of future returns, the index funds had also performed well at this date in investment terms: by end-March 2024 the FTSE Blossom Japan index and the FTSE Blossom Japan Sector Relative index had achieved the highest excess returns since launch of all the Japanese equity ESG indices used by GPIF—1.41% and 1.67% per annum, respectively, by comparison with the respective parent indices.
How FTSE Russell pioneered ESG indices
For FTSE Russell, the design principles behind the FTSE Blossom index range were not new: we pioneered ESG indices of this type in 2001, when we launched the FTSE4Good index range.
The FTSE Blossom range has several features in common with FTSE4Good indices:
- A broad starting universe (in the form of a FTSE Russell capitalisation-weighted benchmark)
- ESG scores based on a comprehensive data model that uses publicly disclosed information
- Index inclusion based on achieving an ESG score above a set threshold (which may increase over time) to incentivise better ESG performance
- Index deletion if a company’s ESG score falls below a set ESG threshold
- A buffer[4] between the inclusion and deletion thresholds to reduce unnecessary index turnover and incentivise engagement with index constituents and potential constituents (companies are given the opportunity to review their initial ESG assessment and to provide additional publicly disclosed information, where appropriate)
- Baseline exclusions—certain types of corporate activity rule out index membership.
How we score ESG exposure and performance
The FTSE Russell ESG data model assesses corporate ESG exposure and performance in two ways: we measure the impact of a company on the external environment; and we measure the company’s risk exposure or resilience to ESG-related risks.
The model allows investors to understand a company’s exposure to (and management of) ESG issues in multiple dimensions. Each rated entity receives an overall ESG Score, which is calculated from underlying “Pillar” and “Theme” exposures and scores. The Pillars and Themes are built on over 300 individual indicator assessments that are applied to each company’s unique circumstances.
One ESG Score, 3 Pillars and 14 Themes
Source: Based on publicly available data. Please see disclaimer for important legal information.
The FTSE Russell ESG data model provides comprehensive coverage of more than 8,000 companies in developed and emerging markets, using a transparent and rules-based scoring methodology and based on publicly disclosed information.
The model focuses on relative exposure to ESG issues to highlight materiality, it considers international standards (such as the Task Force on Climate-Related Financial Disclosures and the Corporate Human Rights Benchmark), and it is supported by a robust internal and external governance system. We operate extensive corporate engagement programmes to encourage improved ESG disclosure.
How we build the FTSE Blossom World and World Sector Relative indices
For the new FTSE Blossom World index, index inclusion for developed market stocks is conditional on an overall FTSE ESG score of 3.3 or above. For emerging market stocks, we set the minimum score at 2.9, recognising the fact that overall ESG performance is lower in emerging markets.
There’s a “buffer” between the ESG scores required for index inclusion and exclusion: constituents of the FTSE Blossom World index in a developed market with an overall ESG score below 2.9 (or having one or more ESG themes assessed as high exposure with a corresponding score of zero) are at risk of deletion from the index series. And constituents of the FTSE Blossom World index in an emerging market and an ESG Score below 2.4 are also at risk of deletion.
Additional inclusion criteria in the FTSE Blossom World index series cover nuclear power generation, climate change score thresholds and high exposure themes (see the index rules for more details).
To incentivise better ESG disclosure and to encourage engagement with potential index members, constituents of the FTSE Blossom World index are allowed a one-year grace period to meet the index eligibility criteria—but will be deleted at the index review one year later if the eligibility criteria are still not met.
The FTSE Blossom World Sector Relative index series is built slightly differently. It draws stocks from the top 50% of ESG performers, based on on FTSE ESG scores, in each ICB sector (subject to a minimum ESG score of 2.0).
In the FTSE Blossom World Sector Relative index series, we set another inclusion criterion: a Transition Pathway Initiative Management Quality (TPI MQ) score of 3 or above for the top 10 percent of greenhouse gas emitters in the index. TPI MQ scores evaluate and track the quality of companies’ governance of their greenhouse gas emissions, and the risks and opportunities related to the low-carbon transition.
The final index construction step ensures industry or sector neutrality. Each index in the FTSE Blossom World index series is built to ensure neutrality with respect to the ICB industry weightings of the underlying index. In the FTSE Blossom World Sector Relative index series, we ensure neutrality with respect to the ICB sector weightings of the relevant underlying index.
FTSE Blossom index construction steps
Why extend FTSE Blossom?
As an index provider, our goal is to align sustainable investment approaches across asset classes through benchmarks and data that cater to investment, stewardship and risk management needs.
ESG equity benchmarks are a long-standing and popular approach to promoting sustainable investment and FTSE Russell is a pioneer in their design and management. Since their launch in 2017, the GPIF funds tracking FTSE Blossom indices have grown to nearly $20bn in size and they are now a well-established part of the investment landscape. Companies routinely celebrate their inclusion in these Japanese equity indices.
But most investors’ ESG requirements and investment processes are now global. Extending the FTSE Blossom design framework to the world’s equity markets caters for those investors who wish to target better ESG performance from the stocks they own—while doing so rigorously, transparently and with controlled risk exposures by comparison with the equity market as a whole.
[1] Government Pension Investment Fund (GPIF) - Top1000funds.com
[2] The Industry Classification Benchmark , which FTSE Russell maintains, contains 11 industries and 45 sectors.
[3] GPIF_ESGReport_FY2023_E_02.pdf
[4] We apply this buffer rule only in the FTSE Blossom Japan and the FTSE Blossom World index series, not in the Blossom Sector Relative index series.
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