For companies in the Dow Jones Sustainability Indexes (DJSI), sustainable business practices represent a comprehensive approach to doing business. For investors, a company’s inclusion in the DJSI indicates quality and commitment to stakeholders.
Launched in 1999, the Dow Jones Sustainability Indexes are the first global indexes to track the financial performance of the leading companies worldwide that are sustainability driven. Based on the cooperation of Dow Jones Indexes, STOXX Limited and SAM, these indexes provide asset managers with reliable and objective benchmarks to manage sustainability portfolios.
The Dow Jones Sustainability World Index (DJSI World) and sub-indexes are developed by SAM, a Zurich, Switzerland-based investment boutique focused exclusively on sustainability investing. DJSI World captures the top 10 percent of the largest 2,500 companies worldwide based on long-term economic, environmental and social criteria.
Currently more than 70 DJSI licenses are held by asset managers in 16 countries that manage a variety of financial products, including active and passive funds, certificates and segregated accounts. In total, these licensees presently manage over $8 billion based on the DJSI.
According to SAM and the DJSI website, index members are selected through a systematic assessment that identifies the sustainability leaders in each of 57 industry groups. (See www.sustainability-index.com.) The underlying research methodology accounts for general as well as industry-specific sustainability trends and evaluates corporations based on a variety of criteria, including climate-change strategies, energy consumption, human resources development, knowledge management, stakeholder relations and corporate governance.
Corporate sustainability creates long-term shareholder value by embracing opportunities and managing risks in relation to economic, environmental and social developments. Companies included in the index build long-term shareholder value by having their strategies and management harness the market’s potential for sustainable products and services.
These companies display high levels of competence in addressing global and industry challenges in multiple areas, such as strategy, finance, customers and products, and human resources.
The indexes’ composition changes regularly. The annual review of the DJSI components considers corporate economic, environmental and social performance; corporate governance; risk management; branding; climate change mitigation; supply chain standards; and labor practices. The review accounts for general as well as industry specific sustainability criteria.
In September 2010, SAM and Dow Jones Indexes announced that 46 companies would be dropped from the DJSI World and 48 companies would be added. The largest additions (by market capitalization) included Standard Chartered, Morgan Stanley and ArcelorMittal; the biggest deletions were Toyota Motor, Royal Dutch Shell and UniCredit.
Corporate sustainability performance is an “investable concept” that can benefit companies and investors: Since its inception on August 31, 1999, the DJSI World Index has generated a 7.66 percent annual return versus the MSCI Index’s 5.87 percent, according to an August 2010 DSJI/SAM report.
Business-software manufacturer SAP is a model of corporate sustainability. For the past four consecutive years, SAP has been named the leader of the software sector of the Dow Jones Sustainability Indexes, and the company has been nominated for the German Sustainability Award in the category “most sustainable business strategy.”
In an e-mail interview, Peter Graf, SAP’s Chief Sustainability Officer, notes that the company became much more serious about sustainability about three years ago after receiving various requests for increased environmental tracking and reporting and for energy management (both in manufacturing and facilities).
In addition, and even more significantly, SAP’s customers began requiring the company to produce a sustainability policy and evidence that the firm was a sustainable supplier and had goals to improve its sustainability position.