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September 23, 2005
Dow Jones Sustainability Indexes Launch United States and North America Indexes
by William Baue
The new indexes apply a best-in-class approach that differs from the approach of US socially
responsible investing indexes currently available, which focus on exclusionary screening.
SocialFunds.com --
When conducting a study on socially responsible investing (SRI) indexes covering the US market, Northfield Information Services had to isolate
US companies from the Dow Jones Sustainability Indexes (DJSI) World Index because DJSI did not offer a US
index. That changes today, with the launch of the DJSI
United States Index, comprised of 93 companies, as well as the DJSI North America, which adds 18
from Canada for a total of 111 components.
 "This is obviously an exciting milestone
for us," said Alex Barkawi, managing director of Sustainable Asset Management (SAM) Indexes, which manages the DJSI. "The DJSI
North America and DJSI United States provide a significant expansion of our index family and the
first equity benchmarks for the region based on SAM's research methodology."
SAM uses a
best-in-class approach that selects companies with best practice on corporate social responsibility
(CSR) across all sectors, while most US SRI indexes apply negative screens, for example excluding
companies that manufacture tobacco, alcohol, or firearms. These indexes include the Domini 400
Social Index (DSI), the
Calvert Social Index (CALVIN), the FTSE4Good US Index, and the Citizens Index. The Jantzi Social Index, which covers the Canadian market,
combines a best-in-class approach with some exclusionary screens, such as nuclear power, but not
gambling.
DJSI also offers versions of its indexes with exclusionary screens applied.
These absolute screens on alcohol, tobacco, and gambling and threshold screens (five percent of
sales) on armaments and firearms reduce the DJSI North America portfolio by six companies, and the
DJSI United States by five. DJSI also offers customized screening for institutional investors.
Negatively-screened indexes particularly appeal to mission-based institutional investors
seeking to align their portfolios with their organizations' values. The best-in-class approach
particularly appeals to fiduciaries who want to maintain diversification across the entire market
while simultaneously prioritizing strong corporate sustainability performance.
"The
concept of sustainability has gained increasing recognition in financial markets over recent years
as investing in companies committed to sustainability principles makes a lot of sense for the long
term," said Michael Petronella, president of Dow Jones Indexes.
Currently, 56 asset
managers in 14 countries manage $4.1 billion in assets through DJSI-licensed products, according to
Dow Jones Indexes Editor John Prestbo. SAM chooses companies based on its Corporate Sustainability
Assessment, which is based on information garnered from a questionnaire sent to companies (and
verified) as well as other tracking other sources, such as sustainability reports and press
accounts. PricewaterhouseCoopers (PwC)
conducts an assurance of this assessment process.
Companies that performed strong enough
on this assessment to make it into the DJSI United States Index include those generally considered
to be sustainability leaders, such as Dell (ticker: DELL), Intel (INTC), Johnson & Johnson (JNJ), Starbucks (SBUX), and Whole
Foods (WFMI).
The index also includes companies that have taken actions recently which exhibit sustainability
leadership, including Cinergy (CIN), Gap Inc. (GPS), and General Electric (GE). And there are
companies in the index that some stakeholders and investors dub as irresponsible, such as
Caterpillar (CAT), Chevron (CVX), Coca-Cola (KO), Computer Associates (CA), McDonald's (MCD, and Walt
Disney (DIS).
Banks dominate the list of 18 Canadian companies that were selected for the NA index,
including Bank of Montreal (BMO), Bank of Nova Scotia (BNS.TO), Canadian
Imperial Bank of Commerce (BCM), Royal Bank of Canada (RY), and
Toronto-Dominion Bank (TD). The DJSI North America Index
also has a high concentration of Canadian oil and gas companies, including EnCana (ECA), Nexen (NXY), Shell Canada
(SHC), Suncor
Energy (SU), and
TransCanada (TRP).
In between the
assessments, SAM conducts Corporate Sustainability Monitoring on a constant basis to insure its
index constituents maintain acceptable levels of responsibility. SAM monitors companies and the
media on a daily basis to identify crisis situations, at which point it administers an Impact
Evaluation to assess "the impact of the crisis on the reputation of the company and its core
business."
"If the impact of the crisis is far reaching, covered worldwide in the media or
is an important concern for the company, then the second step is an analysis of the quality of the
company's crisis management," states the DJSI Index Guide for North America and the United States.
"This step comprises a monitoring of how well the company communicates, informs the public,
acknowledges responsibility, provides relief measures, involves relevant stakeholders and develops
solutions."
"In this context, SAM Research weighs the severity of the crisis in relation
to the company’s reputation and quality of crisis management," continues the document.
©
SRI World Group, Inc. All Rights Reserved.
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