TESCO, Safeway, Royal Bank of Scotland and BG Group are among the companies excluded from the controversial FTSE4Good ethical index launched yesterday.

Mark Makepeace, FTSE chief executive, defended the anomalies in the FTSE4Good UK index, which includes oil giants with tarnished environmental and human rights records such as BP and Shell, but excludes smaller rival BG Group.

He pointed to BG's failure to publish a human rights policy while it invests in Egypt. In contrast, BP, which has a 5pc stake in Tibet-based Petrochina, has a published human rights policy. Royal Bank of Scotland was excluded because it invests in Indonesia without publishing a similar policy. Tesco and Safeway were both excluded because they do not publish environmental reports.

The index is designed to enable institutions and funds to invest in "socially responsible" companies, and will begin operating on July 31. Constituent companies were judged on their environmental, human rights and social policies. Tobacco producers, weapons companies, nuclear power station operators and uranium miners were automatically shut out of the new index.

Spokesmen for the excluded groups expressed surprise at their failure to make FTSE4Good's grade. A Tesco spokesman said the group recycled 155,000 tonnes of card last year, an amount roughly corresponding to 3m trees.

Safeway's spokesman described the compilers of FTSE4Good as having "seriously faulty eyesight" because the supermarket's environmental policy was on its website.

FTSE4Good also came in for criticism from the CBI, which was concerned that excluded companies would be considered by the media and the public as "bad". EIRIS, the consultancy which handled FTSE4Good's research, admitted that some companies might have been excluded because they had not chosen to publish certain policies or because they had failed to fill in a questionnaire.

The FTSE's Mr Makepeace said: "This is not random at all. Clearly people have moral agendas, but we are trying to get away from that."