The Dow Jones Sustainability Indexes (DJSI) launched in 1999, are a family of indexes evaluating the sustainability performance of the largest 2,500 companies listed on the Dow Jones. They are the longest-running global sustainability benchmarks worldwide and have become the key reference point in sustainability investing for investors and companies alike.[1] The DJSI is managed cooperatively by Dow Jones Indexes and Sustainable Asset Management.
The DJSI is based on an analysis of corporate economic, environmental and social performance, assessing issues such as corporate governance, risk management, branding, climate change mitigation, supply chain standards and labor practices. The trend is to reject companies that do not operate in a sustainable and ethical manner. It includes general as well as industry specific sustainability criteria for each of the 57 sectors defined according to the Industry Classification Benchmark (ICB).
The DJSI family contains one main global index, the DJSI World, and various indexes based on geographic regions such as: Europe, Nordic, North America and Asia Pacific.[2] The DJSI also contains industry specific indexes called “blue chip indexes.” In addition, the DJSI methodology facilitates the design, development and delivery of customized sustainability indexes; e.g. indexes covering different regions, indexes covering different segments of the leading sustainability companies, indexes covering additional exclusion criteria and indexes denominated in different currencies.
To be incorporated in the Dow Jones Sustainability Index, companies are assessed and selected based on their long term economic, social and environmental asset management plans. Selection criteria evolve each year and companies must continue to make improvements to their long term sustainability plans in order to remain on the Index. Indexes are updated yearly and companies are monitored throughout the year.[3]
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Indexes are denominated in both US dollars and Euros and are calculated using the Laspeyres formula. All Indexes that are not subsets exclude companies that generate revenue from alcohol, tobacco, gambling, armaments and firearms, and adult entertainment. Index components are based on free float market capitalization and most main indexes are reviewed quarterly, excluding the world index. Customized indexes are continuously being developed and delivered to encompass different regions or individualized sections of companies to add additional exclusions when needed and to change the currencies they are denoted in.
The Dow Jones Sustainability Indexes have been divided into various benchmarks including the World, Europe, North America, Asia Pacific, Nordic, and Korean indexes.[9]
The World Index, or DJSI World, was first published on September 1999. It is based on the largest 2500 companies in the Dow Jones Global Total Stock Market Index (DJGTSMI). It covers the top 10% of these companies in terms of economic, environmental, and social criteria which equals about 300 companies. The DJSI World has two subset indexes, which are the Dow Jones Sustainability Index World 80 (DJSI World 80) and the Dow Jones Sustainability Index World ex US 80 (DJSI World ex US 80). Both subsets were initially published in August 2008 and track the performance of the largest 80 companies globally in terms of sustainability, with the DJSI World ex US 80 excluding the US from the top 80. The DJSI World and its subset are all reviewed on an annual basis.
The Dow Jones Sustainability Europe Index covers the leading 20% of the largest 600 European companies in terms of sustainability from the DJGTSMI. It is subset by three different more specific indexes for the region, the main subset being the Dow Jones Sustainability Eurozone Index (DJSI Eurozone). This index tracks the financial performance of sustainability leaders in the smaller eurozone region. Both indexes were launched in August 2010 and have their own further subset. The two subsets are the Dow Jones Sustainability Europe 40 Index (DJSI Europe 40) and the Dow Jones Sustainability Eurozone 40 Index (DJSI Eurozone 40), both of which were also launched in August 2010. These track the top 40 sustainability leaders in Europe and the smaller Eurozone region. DJSI Europe and Eurozone are reviewed annually as well as quarterly to maintain accuracy of the index composition while the DJSI Europe 40 and DJSI Eurozone 40 are reviewed only annually.
The Dow Jones Sustainability North American Index has a similar design as the DJSI Europe and also reviews the top 20% of the 600 largest companies, but in this case in North America. It was originally launched, along with its subset Dow Jones Sustainability United States Index (DJSI United States), in September 2005. Both Indexes are further broken down by the Dow Jones Sustainability North America 40 Index (DJSI North America 40) and the Dow Jones Sustainability United States 40 Index (DJSI United States 40), which cover the leading 40 sustainability driven companies in North America and The United States, respectively. Both subsets, however, were not launched until August 2008, three years after the DJSI North America.
The Dow Jones Sustainability Asian Pacific Index (DJSI Asia Pacific) was launched at the same time as its single subset, the Dow Jones Sustainability Asia Pacific 40 Index (DJSI Asia Pacific 40), in January 2009. As of 2009, the DJSI Asia Pacific included 122 companies and captures the leading 20% of the top 600 companies in developed Asia Pacific Markets in terms of sustainability as derived from the DJGTSMI. DJSI Asia Pacific 40, the subset, tracks the largest 40 companies who are sustainability leaders in the Asia Pacific region.
The Dow Jones Sustainability Korea Index is derived from the smallest pool of companies, tracking the most sustainable 30% of the largest 200 Korean companies. The Dow Jones Sustainability Korea Index (DJSI Korea) was launched in October 2009, along with its subset the Dow Jones Sustainability Korea 20 Index (DJSI Korea 20). As of this date, 41 companies were included in the DJSI Korea. DJSI Korea 20 encompasses the largest 20 sustainable leading companies in the region. The index encompasses a smaller region than the other indexes resulting in a higher percentage of companies analyzed and a lower number of companies that are reviewed in the subset. The DJSI Korea is also reviewed on an annual and quarterly basis whereas the DJSI Korea 20 is reviewed annually.
A defined set of criteria is used to assess the economic, social, and environmental opportunities of the companies that the DJSI has listed, which are chosen based on the Corporate Sustainability Assessment by SAM Research. Information comes from the annual SAM questionnaire, company transparency documentation, Media and Stakeholder Reports, and personal contact with the companies. Industry leaders from SAM Research’s Corporate Sustainability Assessment are chosen to be listed on the DJSI.
Once a company is listed on the DJSI, it is monitored daily for any critical arising issues, which can lead to the exclusion of the company if deemed critical enough. Examples of events that would lead to exclusion include: commercial practices, human rights abuses, layoffs or worker disputes, or catastrophic disasters. These companies are monitored through publicly accessible information including media and company contact. If one of these critical events happens, the situation is analyzed for the scope in which it reaches. If large enough, the event will be analyzed further based on severity, media coverage, and crisis management. SAM analysts decide from here whether the company will be excluded from the DJSI. An assurance report is completed by Deloitte to ensure the validity of the company’s information.
In early 2009, an independent expert study commissioned by UNEP FI and presented at the World Economic Forum in Davos, highlighted the SAM assessment as “the most rigorous in terms of the number of questions and depth of information requested".[10]
In 2009, SAM carried out its 11th consecutive [Corporate Sustainability Assessment], assessing more than 1,200 companies, an increase of 8% from 2008. At the onset of DJSI’s assessment criteria, SAM mainly focused on government compliance and regulations. It has evolved to embrace Corporate Sustainability as a key competitive advantage, taking into account nine specific criteria in addition to industry specific criteria. Below are the criteria and weightings SAM uses to assess a company’s overall score.[11]
| Criteria | Weightings |
|---|---|
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Note that these weightings are approximations, and actual weightings may differ between industries. A Breakdown of these Dimensions is seen below [12]
| Economic Sector | Weightings in percentage |
|---|---|
| Corporate Governance | 6.0 |
| Risk and Crisis Management | 6.0 |
| Codes of Conduct/Compliance/Anti-Corruption & Bribery | 6.0 |
| Industry Specific Criteria | Depends on Industry |
| Environmental Sector | Weightings in Percentages |
|---|---|
| Environmental Reporting | 3.0 |
| Industry Specific Criteria | Depends on Industry |
| Social Sector | Weightings in Percentages |
|---|---|
| Human Capital Development | 5.5 |
| Talent Attraction & Retention | 5.5 |
| Labor Practice Indicators | 5.0 |
| Corporate Citizenship / Philanthropy | 3.0 |
| Social Reporting | 3.0 |
| Industry Specific Criteria | Depends on Industry |
Number of invited companies in 2010:[13]
Some of the assessment criteria have varied slightly from year to year to reflect growing information about particular issues such as water related risks, brand management, corporate citizenship, risk and crisis management. Continuous improvement allows for SAM to provide both relevant and current information.
Since 1999, SAM’s Corporate Sustainability Assessment has increased in number of assessed companies, number of sectors, number of questions to companies, average totally sustainability score, and weight of sector-specific criteria in percentage total weight.[14]
| 1999 | 2009 | |
|---|---|---|
| Number of assessed Companies | 468 | 1,237 |
| Number of Sectors | 68 | 58 |
| Number of questions to companies | 50 | 100 |
| Average Total sustainability score (out of 100) | 27 | 48 |
| Weight of sector-specific criteria (in % of total weight) | 30 | 57 |
Included in the most recent SAM questionnaire are more difficult to measure intangible business attributes such as innovation and customer relationship management. Questions are both directed at short-term risks and opportunities and sustainable long-term value creation.[15] The intensity of the industry-specific criteria has continuously increased. In 1999, industry-specific information accounted for only 30% of the overall score, while now it accounts for nearly 60%.
From these questionnaires, each company can be awarded one or a combination of the following status:.[16]
The following lists are just a few of the more recognizable companies listed on the Dow Jones Sustainability Indexes. It is not a complete list, however, this list is for the 2010-2011 year and updated as of October 2010[update].
| DJSI World Index[17] | DJSI Europe Index[18] | DJSI Eurozone Index[19] |
|---|---|---|
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| DJSI North American Index[20] | DJSI Asia Pacific Index[21] | DJSI Korean Index[22] |
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The November 2010 DJSI Review includes a review of: key facts (showcasing recent news and growth in asset management), 2010 assessment, Dow Jones Sustainability World Index, Dow Jones Sustainability Europe Index, Dow Jones Sustainability Asia Pacific Index, Dow Jones Sustainability North America Index, Dow Jones Sustainability Korea Index, and Adjustments to Sustainability Index 2010. Each index on the review includes an Index Range, Dow Jones Global Stock Market Index, Selection of companies (percent of companies per sector, percent of market cap coverage), the number of companies added and deleted from the DJSI, and component selection (based on industry). All changes will take effect at the close of trading on December 17, 2010.
It has been noted that because the DJSI mainly relies on data provided by the companies themselves, the credibility of the information may be questioned, given the self-interest of the companies to disclose favourable data. It has been also found that in the DJSI the three dimensions of sustainability are not considered in a balanced way, being biased towards economic criteria to the disadvantage of social and environmental ones. A further bias of the DJSI is that it only includes large companies, whereas other indices include smaller companies as well. As a consequence of these limitations, a survey conducted among sustainability experts found that only 48% considered the DJSI as "highly trusted".[23]