Dow Jones Sustainability Index

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]

History

1999: The Dow Jones Sustainability Indexes are launched in September. It is collaboration with SAM and the Dow Jones Indexes. SAM is a global investment company focused exclusively on Sustainability Investing.[4] The Indexes are created to track financial success of leading sustainability companies. The top 10 percent of the largest 2500 companies listed on Dow Jones are included. 2001: The DJSI is expanded to include STOXX Ltd., another indexing company. The Dow Jones STOXX Sustainability Index is introduced and marketed towards Europes sustainability leaders.[5] 2005: Dow Jones Sustainability North America Index is created. 2006: Dow Jones Indexes and SAM Launch Dow Jones Islamic Market Sustainability Index that combines Islamic investing principles and sustainability criteria from the DJSI.[6] 2009: Dow Jones Sustainability Asia Pacific Index and Korea Index are launched.

2010: SAM and Dow Jones Indexes terminate collaboration with STOXX. Dow Jones Indexes will be responsible for calculation, marketing and distribution of the indexes including the European Indexes, while SAM [will] remain responsible for the component selections. As a result, SAMs collaboration with STOXX Ltd., which had previously calculated the European STOXX Sustainability Indexes, has been terminated.[7] 2010: SAM and Dow Jones Indexes Launch DJSI Nordic Index [8]

Indexes
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]

DJSI World Index

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.

DJSI Europe and Eurozone Index

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.

DJSI North America and United States Index

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.

DJSI Asia Pacific Index

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.

DJSI Korea Index

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.

Assessment
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 Researchs 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 companys 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 DJSIs 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 companys overall score.[11] Criteria Economic Dimension: 33% Environmental Dimension: 33% Social Dimension: 33% Weightings

Industry Criteria: 57% General Criteria: 43%

Note that these weightings are approximations, and actual weightings may differ between industries. A Breakdown of these Dimensions is seen below [12] Economic dimension 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 dimension Weightings in Percentages Environmental Reporting 3.0 Industry Specific Criteria Depends on Industry Social dimension 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]

Total Number Invited Companies = 2,617 DJSI World Universe = 2,500 DJSI Europe Universe = 600 DJSI North America Universe = 600 DJSI Asia Pacific = 600 DJSI Korea = 200 Companies analyzed globally = 1,393 Companies completing questionnaire = 698 Companies analyzed based exclusively on public information = 695

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, SAMs 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]

Sector Leader: In each sector, the SAM Sector Leader is identified as the company best prepared to seize the opportunities and manage the risks deriving from economic, environmental and social developments. The SAM Sector Leader is the company with the best score of all companies assessed in this sector. Sector Mover: Sector Mover is awarded to the company that achieved the biggest proportional improvement in its Sustainability performance compared with last year.

SAM Gold Class: To qualify for the SAM Gold Class, the SAM Sector Leader must achieve a minimum total score of 75%. Peer group companies whose total score is within 5% of the SAM Sector Leader are also awarded. SAM Gold Class. A score up to 10% lower than the leader results in SAM Silver Class, a score up to 15% lower than the leader results in SAM Bronze Class. SAM Silver Class: To qualify for the SAM Silver Class, the SAM Sector Leader must achieve a total score in the range of 70-75%. Peer group companies whose total score is within 5%-10% of the SAM Sector Leader are also awarded SAM Silver Class, while a score of 10% lower than the leader results in SAM Bronze Class. Sam Bronze Class: To qualify for the SAM Bronze Class, the SAM Sector Leader must achieve a total score in the range of 65-70%. Peer group companies whose total score is within 10%-15% of the SAM Sector Leader are also awarded SAM Bronze Class.

Companies listed
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. DJSI World Index[17] 1. Adidas - Germany 2. BMW AG - Germany 3. Coca-Cola Co United States 4. Christian Dior S.A. France 5. Halliburton Co. United States 6. Hewlett Packard Co. United States 7. Hyundai Engineering & Construction Co. Ltd. South Korea 8. Intel Corp. United States 9. Mitsubishi Corp. Japan 10. McDonalds Corp. United States 11. Nokia Corp. - Finland 12. Panasonic Corp. Japan 13. Rolls-Royce Group DJSI Europe Index[18] 1. Adidas AG - Germany 2. Air France - KLM France 3. Astrazeneca PLC United Kingdom 4. BMW AG- Germany 5. Coca-Cola Hellenic Bottling Co. S.A. Greece 6. Deutsche Bank AG Germany 7. European Aeronautic Defence & Space Co. EADS - France 8. LOral S.A. France 9. LVMH Moet Hennessy Louis Vuitton France 10. Nestle S.A. Switzerland 11. Siemens - Germany 12. ThyssenKrupp AG Germany 13. Volkswagen AG NonVtg Pfd. Germany DJSI Eurozone Index[19] 1. Abertis Infraestructuras S.A. Spain 2. Adidas AG - Germany 3. ArcelorMittal - France 4. BMW AG Germany 5. Christian Dior S.A. France 6. Enel S.p.A. Italy 7. Finmeccanica S.p.A. Italy 8. Fortum Oyj Finland 9. Indra Sistemas S.A. Spain 10. Infineon Technologies AG Germany 11. LeGrand S.A. France 12. Puma AG Rudolf Dassler Sport Germany 13. Siemens AG Germany 14. Suez Environement

PLC United Kingdom 14. Samsung Electronics Co. Ltd South Korea 15. Siemens AG - Germany 16. Starbucks Corp. United States 17. Toshiba Corp. Japan 18. Unilever - United Kingdom 19. AB Volvo - Sweden 20. Woodside Petroleum Ltd - Australia DJSI North American Index[20] 1. 3M Co. United States 2. Allstate Corp. United States 3. Bank of Montreal Canada 4. Campbell Soup Co. United States 5. Caterpillar Inc. United States 6. ConocoPhillips United States 7. Dell Inc. United States 8. Ford Motor Co. United States 9. Gap Inc. United States 10. H & R Block Inc. United States 11. Kinross Gold Corp. Canada 12. Macys Inc. United States 13. Microsoft Corp. United States 14. National Bank of Canada Canada 15. Procter & Gamble Co. United States

14. AB Volvo Sweden 15. Wolters Kluwer N.V. Netherlands 16. Xstrata PLC United Kingdom

S.A. France 15. ThyssenKrupp AG Germany

DJSI Asia Pacific Index[21] 1. AGL Energy Ltd. Australia 2. Bridgestone Corp. Japan 3. CLP Holdings Ltd. Hong Kong 4. Daewoo Securities Co. Ltd. South Korea 5. Fujifilm Holdings Co. Ltd Japan 6. Hitachi Ltd. Japan 7. Hyundai Engineering & Construction Co. Ltd. South Korea 8. Insurance Australia Group Ltd. Australia 9. Keppel Land Ltd. Singapore 10. LG Electronics Inc. South Korea 11. Mitsubishi Materials Corp. Japan 12. Nissan Motor Co. Ltd. Japan 13. Panasonic Corp. Japan 14. Samsung ElectroMechanics Co. Ltd. South Korea 15. United Microelectronics Corp. Taiwan

DJSI Korean Index[22] 1. Asia Cement Co. Ltd. South Korea 2. Asiana Airlines Inc. South Korea 3. Daewoo Shipbuilding & Marine Engineering Co. South Korea 4. Hyundai Steel Co. South Korea 5. KB Financial Group South Korea 6. Kia Motors Corp. South Korea 7. Korea Electric Power Corp. South Korea 8. Mirae Asset Securities Co. Ltd. South Korea 9. Nongshim Co. Ltd. South Korea 10. OCI Co. Ltd. South Korea 11. Samsung Electronics Co. Ltd. South Korea 12. SK Energy Co. Ltd. South Korea 13. S-Oil Corp. South Korea 14. Taihan Electric Wire Co. Ltd. South Korea 15. Woongjin Chemical Co.

Ltd. South Korea

Reviews
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.[dated info]

Criticism
In April of 2010, an explosion on BPs Deepwater Horizon oil drilling rig in the Gulf of Mexico exploded, killing 11 crew members and injuring dozens more. Forty days later, SAM removed BP from the DJSI[23], thereby starting a global debate regarding the value of rating agencies in assessing a companys corporate sustainability. 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. SAM uses four sources of information to assess corporate sustainability: company questionnaire, company documentation, media and stakeholder analysis, and contact with companies.[24][25] Information source Company questionnaire Who provides them What type of documents

SAM distributes sector-specific questionnaires to each company. Companies complete and sign the questionnaire. Companies SAM analysts validate responses. The responses are further verified by PricewaterhouseCoopers, an external resource. Documents requested from companies include sustainability reports, environmental reports, health and safety reports, Company Companies social reports, annual financial reports, special reports (e.g. Documentation on intellectual capital management, corporate governance), and all other sources of company information Media and The mass media, press releases, news articles, employee and investor Stakeholder stakeholder feedback, stakeholder commentaries, and other publicly Analysis organisations assessable sources Company and - Discussions and phone conversations with company Company contact SAM representatives

Using self-reported data as proxies for the social or environmental effects DJSI intends to reflect leaves the index exposed to corporate biases and additional credibility risks. it rewards companies with greatest capacity to respond to SAM's questionnaires and information requests rather than those with the best socially responsible practices.[26] Secondly, relying on selfreported data carries substantial risks since information from companies may not be completely credible. An index based on biased information often underestimates real risk factors in the listed companies' operation, even in those instances when submitted information if verified by an auditing firm such as Pricewaterhouse Coopers. Ultimately, companies with challenging corporate environmental and social issues are more likely to devote public relations resources to minimize the perception of risk within their operations. 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".[27]