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D for Dow Jones Sustainability Index- Word! Wednesday

As sustainability indices and funds evolve and more research is being done, companies are beginning to see the economic value of incorporating sustainability practices into their organization. Sustainability indices provides a link between a company's sustainability practices and it's long term economic growth and success. They promote internal collaboration, make companies re-evaluate their policies and provide an incentive for leaders across industries to collaborate and compare trends and best practices.

Image credit: EV from Unsplash

The Dow Jones Sustainability Indices (DJSI) are a group of indices that evaluate the sustainability of publicly-traded companies. Started in 1999 and now in their 20th year, they were one of the earliest indices aimed towards tracking the financial performance of leading sustainability-driven companies. Every year, they assess companies across 61 industries for

environmental, social and governance (ESG) performance markers. They operate under a partnership with S&P Dow Jones Indices and RobescoSAM.

How it works:

The DJSI are made up of one main global index, and other indices based on geography:

DJSI World Universe

DJSI Europe Universe

DJSI North America Universe

DJSI Asia Pacific Universe

DJSI Emerging Markets Universe

DJSI Korea Universe

DJSI Australia Universe

DJSI Chile Universe

DJSI MILA Universe

They also offer DJSI Indices with exclusion criteria such as Armaments & Firearms, Alcohol, Tobacco, Gambling and Adult Entertainment and other controversial commodities.

For a company to be eligible to be invited to participate, it has to have a good Total Sustainability Score (TSS) calculated under the guidelines of RobescoSAM's Corporate Sustainability Assessment (CSA). It also has to be in the top 10% (World), 20% (Regional) or 30% (Country) most sustainable market caps per Industry.

There are approximately 10,000 companies in the Starting Universe. This year, 3,519 companies were invited as part of the Invited Universe to participate in the CSA. Of the 3,519 that were invited, 2,296 were analyzed - 1,166 completed the questionnaire and 1,130 were assessed based exclusively on public information.

The assessments are based on the following criteria:

  • Information Security/Cybersecurity & System Availability

  • Privacy Protection

  • Sustainable Finance

  • Energy Mix

  • Raw Material Sourcing

  • Living Wage

SAM uses four sources of information to collect the above data:

  1. Company Questionnaire- companies complete the questionnaire sent by SAM

  2. Documentation- Includes sustainability, environmental, health and safety, financial and other reports

  3. Media and stakeholder analysis- Sources from third parties such as news reports, social media, NGO commentaries etc.

  4. Company contact: Any conversations and communications between SAM and the company

Critics say this methodology rewards companies which have better capacity to respond to the above requests than lesser-capacity companies which might have better sustainability practices. Self-reported data by companies also dilutes the credibility of the report. Some companies can get away with a lot of challenging issues with good PR outreach, campaigns and connections. Smaller companies cannot participate, thus limiting the scope of the report.

Here's a list of the top performing companies from the 2019 assessment, the methodology and the full report.

The sustainability bar rises every year and companies are held more accountable to improve their practice. Companies are in turn incentivized to do good and better while still being economically viable. Participation in sustainability assessments has grown steadily and continues to get noticed by consumers, investors, media, company CXOs and Boards. All in all, it's a good thing.

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