Building Value That Lasts

Corporate sustainability is beneficial for both managers and investors. According to Dow Jones, corporate sustainability is “a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments.

“Corporate sustainability leaders achieve long-term shareholder value by gearing their strategies and management to harness the market’s potential for sustainability products and services while at the same time successfully reducing and avoiding sustainability costs and risks,” Dow Jones explains on its website.

In collaboration with Zurich-based SAM Indexes, Dow Jones has created a range of Dow Jones Sustainability Indexes (DJSI). SAM Indexes and Dow Jones evaluate multiple factors before including a company in an index. Key considerations include the following:

Integrating long-term economic, environmental and social aspects into business strategies while maintaining global competitiveness and brand reputation;

Meeting shareholders’ demands for sound financial returns, long-term economic growth, open communication and transparent financial accounting;

Fostering loyalty by investing in customer relationship management and product and service innovation that focuses on technologies and systems, which use financial, natural and social resources in an efficient, effective and economic manner over the long-term;

Setting the highest standards of corporate governance and stakeholder engagement, including corporate codes of conduct and public reporting; and

Managing human resources to maintain workforce capabilities and employee satisfaction through best-in-class organizational learning and knowledge management practices and remuneration and benefit programs.

The Dow Jones Sustainability Indexes are dynamic. SAM Indexes conducts a comprehensive annual Corporate Sustainability Assessment to determine which firms will be added to or deleted from the indexes. In 2011, 41 companies were added and 23 firms deleted from the Dow Jones Sustainability World Index, resulting in a total of 342 component companies.

Investors’ Perspective

Corporate sustainability performance is an investable concept, according to Dow Jones. Ideally, stakeholders — including investors — recognize and reward a company’s efforts. In turn, this “benefit circle” should “have a positive effect on the societies and economies of both the developed and developing world,” the research group says.

Dow Jones maintains that companies recognized as “sustainability leaders are increasingly expected to show superior performance and favorable risk/return profiles. A growing number of investors are convinced that sustainability is a catalyst for enlightened and disciplined management, and, thus, a crucial success factor.”

DJSI World’s annualized total return in U.S. dollars from December 31, 1993, through August 31, 2011, were nearly +11 percent on a one-year basis, about -2.5 percent on a three-year-basis, roughly -0.7 percent on a five-year basis, close to +4.0 percent on a 10-year basis, and +7 percent since inception.

A Range of Strategies

Companies customize their approach to sustainability within the broad framework. For instance, the Volvo Group is responsible for developing transport solutions that convey cargo and passengers as efficiently as possible, while contributing to the economic development of customers and society as a whole, according to John Hartwell, vice-president of investor relations. Hartwell reports that Volvo Group has identified four key areas within sustainable development: products, environmental impact, responsible sourcing, and a high-performing organization and company culture.

Business-management software maker SAP AG pursues a dual sustainability strategy, according Friederike Edelmann, director of that firm’s investor-relations department. First, the firm works to become a role model for how a large company can address sustainability both by policy and principles, and by using technology. Second, SAP strives to enable its customers to address sustainability using SAP’s technology.

“We became much more serious about sustainability about four years ago,” Edelmann explains. “That’s when we started receiving requests from some of the industries we serve for improvements to our applications designed to manage product safety (for instance, REACH for chemicals and ROHS for high tech), traceability (especially for the food industry), environmental tracking and reporting, and energy management, both in manufacturing and facilities”.

Health-care company Roche does not have a separate sustainability strategy, according to Dianne Young, the firm’s investor relations officer for sustainability, because it is inherent in the way Roche conducts business. She notes that the firm’s business is focused on the long term by nature due to the long development times for pharmaceutical products.

Consequently, Young says, Roche ensures it has sustainable practices in all aspects of the way it operates. This can be evidenced in the company’s mission: “Our mission today and tomorrow is to create added value in healthcare by focusing on our expertise in diagnostics and pharmaceuticals,” she explains.