What is the Dow Jones Sustainability Index (DJSI)?
The Dow Jones Sustainability Index, popularly known as DJSI launched in 1999, is a resource for understanding the performance of the world’s leading companies on ESG criteria developed in collaboration between Dow Jones Indices and RobecoSAM, a global investment company based in Switzerland.
These measurements provide a complete view of the sustainability and transparency of companies of interest to investors, thereby helping them in making important decisions.
With new regulations governing sustainability and ESG (Environmental, Social, and Governance) gaining traction among investors, choosing a strong benchmark to assist new market entrants in understanding the viability of impact investment for the collective good of the planet is both perplexing and critical.
Private wealth managers in more than 20 countries use the index to benchmark their asset management.
S&P Dow Jones Indices was formed in 2012 after S&P Indices and Dow Jones Indexes merged.
Dow Jones Sustainability Index: Key Takeaways
The Dow Jones Sustainability Index (DJSI), founded in 1999, analyses the ESG performance of the world's top companies, assisting investors in making informed decisions. Inclusion in the DJSI can improve a company's reputation and brand image by indicating to stakeholders, investors, and consumers that it is committed to sustainable practices. With expanding sustainability laws, DJSI is an important benchmark for determining the impact and viability of sustainable initiatives.
Private wealth managers in over 20 countries use the DJSI as a benchmark for asset management. The DJSI evaluates companies based on ESG factors like climate change mitigation, labour practices, supply chain standards, governance, and innovation.
The Dow Jone Sustainability World index includes the top 10% of the 2,500 largest global companies, while the DJSI North America index comprises the top 20% of the 600 largest North American companies.
Meanwhile, the DJSI Europe index features the top 20% of the 600 largest European companies, and the DJSI Asia Pacific index includes the top 20% of the 600 leading companies in the Asia-Pacific region. The DJSI Korea index consists of the top 30% of the 200 largest Korean companies, and the DJSI Nordic index includes the top 20% of the 600 largest Nordic companies.
How Does the DJSI Operate?
The Dow Jones Sustainability Index will analyse the performance of companies on issues such as climate change mitigation, labour practices and human rights, supply chain standards, risk management, governance and ethics, innovation and technology and customer relationships.
The goal is to identify laggards and industry leaders in terms of ESG, providing investors with information on where to invest their money for the collective benefit of the planet. This is being done according to the Industry Classification Benchmark (ICB), which defines both general and industry-specific sustainability criteria for each of the 60 industries under the benchmark.
Each company is assessed and given an ESG score based on company disclosures, news, and ESG metrics. This continuous process increases the credibility of companies and the trustworthiness of investors. Evaluating sustainability performance is crucial to gaining a competitive advantage in attracting customers, talent, and business partners.
Read more: What is Sustainable Report? Meaning, Types, and Benefits
Indices within the DJSI
The Dow Jones Sustainability Indexes (DJSI) play an increasingly important role in raising awareness of environmental and social issues. The DJSI is a group of the following indices:
Dow Jones Sustainability World Index (DJSI World)
Published in 1999, the DJSI World is a performance-based index monitoring the stock performance of the top 10% of the 2,500 largest companies in the Dow Jones Global Total Stock Market Index in terms of sustainability or environmental, social, and governance practices. Investors can track information regarding these companies’ financial performance and make informed decisions. The selection process of companies includes criteria such as their performance in economic, social, and environmental aspects, which collectively contribute to their corporate sustainability performance.
Dow Jones Sustainability North America Index (DJSI North America)
Launched in 2005, the index analyses and reviews the top 20% of the 600 largest companies. The companies’ performance is based on economic, environmental, and social criteria, with the economic dimension encompassing corporate governance, risk management, financial performance, and innovation-related indicators. The subsets of DJSI North America are: 1) DJSI United States and 2) DJSI North America 40 (40 here indicates the number of companies analysed).
Dow Jones Sustainability Europe Index (DJSI Europe)
This index monitors the stock performance of the top 20% of the 600 largest European companies based on economic, environmental, and social elements. The DJSI Europe Index includes global sustainability leaders recognised for their strong sustainability practices. Introduced in 2010, it is a global sustainability benchmark for some of the leading European companies and their financial performance. It has two main subsets: first, the Dow Jones Sustainability Eurozone Index (DJSI Eurozone); and second, the Dow Jones Sustainability Europe 40 Index (DJSI Europe 40).
Dow Jones Sustainability Asia Pacific Index (DJSI Asia Pacific)
This was launched in 2009 to track the stock performance of leading Asian companies in terms of sustainability. The DJSI Global Corporate Sustainability Assessment evaluates the performance of companies in economic, environmental, and social dimensions. It includes 122 companies and analyses the top 20% of 600 companies in the developed Asia-Pacific markets. DJSI Asia Pacific 40 is its subset.
Dow Jones Sustainability Korea Index (DJSI Korea)
The leading 30% of the 200 largest Korean companies are tracked, and their sustainability performance of companies is monitored by this sustainability index. It was launched in 2009, and the Dow Jones Sustainability Korea 20 Index (DJSI Korea 20) is its subset, which tracks the stock performance of the top 20 sustainable companies in Korea.
Dow Jones Sustainability Nordic Index (DJSI Nordic)
The Dow Jones Sustainability Nordic Index (DJSI Nordic), launched in 2010, is a sustainability benchmark that tracks the performance of Nordic companies. The DJSI Global Corporate Sustainability Assessment uses specific criteria such as economic, environmental, and social dimensions, to evaluate companies. It monitors the top 20% of the 600 largest Nordic companies.
How Can Companies Enter the Dow Jones Indices?
Companies cannot directly apply to include their names in the Dow Jones Sustainability Indices. S&P Dow Jones Indices and RobecoSAM choose companies through an annual review using a global corporate sustainability assessment. This assessment process vets companies' sustainability practices using a mix of cross-industry and industry-specific questions, guiding the selection of companies for the Dow Jones Sustainability Indices.
This review looks at many factors, such as environmental performance, social practices, corporate governance, and economic indicators. The Dow Jones Sustainability Index includes global, regional, and country-specific benchmarks. In addition to that, information regarding companies is also collected through company documentation, the Media and Stakeholder Analysis provided by RepRisk, and personal contacts with companies.
During the examination, businesses are compared to others in their field to determine how well they perform in terms of sustainability. This includes reviewing publicly available information, company reports, and communicating directly with the companies. Climate strategy, environmental reporting, labour standards, corporate governance, and risk management are all important topics to evaluate. If one of the companies is found to be in violation of any of the significant issues, that company may be excluded if it is deemed critical enough.
Only the top-performing companies in each industry are included in the DJSI. This careful and unbiased process ensures that the companies selected are true leaders in sustainability in their fields.
RobecoSAM analysts will make the final decision on whether to exclude a company or not. They also depend on media coverage and an assurance report from Deloitte to confirm the veracity of the company’s information.
Advantages of Being Included in the DJSI
Investors’ confidence: The DJSI is used as a global benchmark for making investment decisions regarding sustainability and ESG. A higher score by any company in the index means that investors are more confident in making such decisions.
Sustainability leaders: There is a growing interest among people, particularly among Gen Z, to opt for sustainable products and services. Being listed among the top in the DJSI signifies that companies are recognized as sustainability leaders within their industries, demonstrating strong sustainability practices and leadership.
Work culture: Videos about toxic work culture and office politics are constantly being liked and shared by people on various social media platforms. Companies that are listed on the DJSI are more likely to have a friendly work culture, thereby enhancing their productivity and morale.
Word of mouth: Being listed on the DJSI index will substantially boost the marketing aspect of any company organically. They can reduce costs significantly when people start talking about them, thereby increasing their brand image.
Company introspection: Getting listed on the DJSI index requires continuous and meticulous effort, as does maintaining the status. This allows companies to introspect, discover where they went wrong, and come up with solutions to overcome it.
Follow in pursuit: Companies listed on the DJSI index will set a precedent that helps others to follow in pursuit of sustainability efforts. This will create a chain reaction and contribute collectively to the benefit of the planet.
The Dow Sustainability Index, or Dow Jones Sustainability Index, is where investors can turn to understand the evolving landscape of ESG criteria. The index guides investment decisions that prioritise long-term impact, helping investors monitor corporate credibility and promote innovation and responsible governance.
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