08 Sept, 2022

The Dow Jones Sustainability Indices (DJSI) are designed to help investors looking to track equity markets while applying a best-in-class sustainability selection process.

There are various types of indices that fall under the umbrella of the Dow Jones Sustainability Indices (DJSI) family that comprises global, regional, and country benchmarks:

  • DJSI World
  • DJSI North America
  • DJSI Europe
  • DJSI Asia Pacific
  • DJSI Emerging Markets
  • DJSI Korea
  • DJSI Australia
  • DJSI Chile
  • DJSI MILA Pacific Alliance

The DJSI World Index, for instance, represents the top 10% of the biggest 2,500 organisations in the S&P Global Broad Market Index based on the long-term criteria of Environment, Social and Governance.

Who are they for?

The astute investor will see the benefit of the DJSI as it provides awareness to the investor community and the company’s clients about their ESG performance and whether it meets sustainability standards.

For instance, potential investors who want to limit exposure to controversial businesses such as Armaments & Firearms, Alcohol, Tobacco, Gambling and Adult Entertainment will be glad to find that the S&P Dow Jones Indices also offer DJSI Indices with exclusion criteria.

Is it unbiased and fair?

The DJSI has a transparent, rules-based component selection process based on the companies’ total sustainability scores which are the results of the annual S&P Global Corporate Sustainability Assessment (CSA).

Notice the use of the word ‘annual’ which says the companies belonging to DJSI are reviewed in September of every year and with regular adjustments.

How does CSA benefit companies?

The Corporate Sustainability Assessment (CSA) allows companies to directly report key sustainability metrics and benchmark a business's performance on economic, environmental and social criteria. These criteria are industry-specific and therefore add relevance to investors who are focused on sustainability in addition to being financially significant for the business.

Companies can use their scores from the CSA to implement a sustainable business, reduce sustainability risks and realise opportunities, embedding sustainability thinking in the company’s DNA, in addition to communicating with sustainability-focused investors.

DJSI assessment

Some of the issues assessed by the DJSI include corporate governance, risk management, branding, climate-change mitigation, supply chain and labour practices and standards. The aim is to assess a company’s ethical and sustainability behaviour that are both industry-specific and financially material, which in turn helps companies understand which sustainability factors are important for investors and those that are most likely to impact financial performance or long-term value-generating potential.

It is imperative to note that this assessment is reviewed annually with the questionnaire changing to capture emerging trends in sustainability and upgrade the expectations from companies. It is the comprehensive nature of the questionnaire which ensures that a company can highlight sustainability strengths, even in areas that are not traditionally reported, thereby giving a more accurate report of performance.

A brief note on a some of the indices

DJSI World Index

Launched in September 1999, this index has 2500 of the largest companies and covers the 10% of these in terms of economic, social, and environmental criteria in addition to industry-specific questions. With subsets launched in 2008 focusing on the top 80 companies as well, the DJSI World Index is reviewed annually.

Dow Jones Europe and Eurozone Index

This Index covers the top 20% of the largest 600 European companies, in terms of sustainability. A subset of this Index is focused on the Eurozone called the DJSI Eurozone Index, which tracks the financial performance of sustainability leaders in the smaller Eurozone region. Further subsets include the Dow Jones Sustainability Europe 40 Index and the Dow Jones Sustainability Eurozone 40 Index.

DJSI North America and the United States Indices

With the obvious being stated, that this Index is focused on the North American region, the DJSI North America Index is quite similar to Europe covering the top 20% of the largest 600 companies. It was launched in 2005, along with the DJSI United States subset. Further subsets on the top 40 in the USA and North America were also launched a few years later.

DJSI Korea Index

This index is focused entirely on the country and is more limited in its scope in that the index tracks the most sustainable 30 per cent of the largest 200 Korean companies. Compared to other indices such as World, Europe, and North America, the DJSI Korea Index contributes the least number of invited companies. However, the smaller scope means that a larger percentage of companies are being assessed and this index is also reviewed quarterly and annually.

Dow Jones Sustainability Australia Index

Focused on Australia, this index covers the top 30% of performances out of a total of 200 companies. Assessed and identified by the CSA, the criteria are fundamentally on the long-term economic, environmental, and social metrics of a company.

In conclusion

The Index works on three fundamental aspects it focuses on for companies to be listed:

  • The economic dimension includes Corporate Governance, Risk and Crisis Management, Codes of conduct/compliance/anti-corruption in addition to industry-specific criteria
  • (b) Environmental – As the name suggests, this focuses on the company’s environmental reporting and also has industry-specific criteria
  • The Social aspect includes criteria that may include human-capital development, talent attraction and rejection, labor practices, CSR activities and industry-specific criteria.

These criteria are regularly updated as per the latest benchmarks with companies observed regularly over the year.

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