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How to be selected by the DJSI (Dow Jones Sustainability Index)
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The Dow Jones Sustainability Index (DJSI) emerged during a time when the concept of integrating environmental, social, and governance (ESG) factors into investment strategies was considered to be niche. By offering a concrete and transparent method for evaluating companies on these factors, the DJSI played a crucial role in mainstreaming sustainability in global financial markets.
Since its inception in 1999, the DJSI has expanded its reach, introducing regional and sector-specific indices which has created a more nuanced understanding of sustainability performance across different industries and regions. As its influence has grown, more and more companies have sought to seek inclusion in the DJSI, with many using the index's criteria as a framework for enhancing their sustainability initiatives.
👉 In this article we’ll explore how companies are selected by the DSJI, and the benefits of being included.
What is the DJSI?
“ The Dow Jones Sustainability Index (DJSI) is a globally recognized benchmark that assesses the sustainability performance of companies based on economic, environmental, and social criteria. ”
Created in 1999 under a strategic partnership between S&P Dow Jones Indices and the Swiss firm RobecoSAM (Sustainable Asset Management) to provide investors with a clear metric for tracking the performance of companies committed to sustainable business practices. The index evaluates companies across various sectors and selects those that demonstrate strong sustainability leadership, serving as a guide for investors who prioritise the sustainability performance of companies in their investment decision-making processes.
In recent years, the significance of the DJSI has grown as investors increasingly recognise the value of sustainability in corporate strategy. Companies included in the DJSI often publicise the fact as it demonstrates their commitment to addressing sustainability challenges.
However, inclusion in the DJSI requires companies to undergo a rigorous assessment, focusing on various metrics like climate strategy, corporate governance, and stakeholder engagement. But the rewards make the process worth it - achieving a spot on the DJSI not only reaffirms a company’s dedication to sustainability but also positions them favourably in the eyes of eco-conscious investors.
👉 To find out more about ESG investing and why it’s fast becoming one of the most popular investment trends, head over to our article on the topic.
The importance of the DJSI in the global sustainability landscape
The Dow Jones Sustainability Index (DJSI) plays an important role in the global sustainability landscape. As one of the longest-running global sustainability benchmarks the DJSI has had a significant impact on shaping corporate behaviours and investor decision-making.
The DJSI is one of the most prestigious benchmarks for corporate sustainability and has helped to set the standard for what it means to be a responsible, forward-thinking company. Companies across the world often use the DJSI criteria as a roadmap for improving their own environmental, social, and economic practices. The rigorous assessment criteria of the DJSI push companies to evaluate their operations holistically, considering not only profitability but also their impact on society and the environment. By doing so, the DJSI effectively nudges the global corporate community toward more sustainable practices.
“ The DJSI acts as a benchmark for investors who are increasingly integrating sustainability into their investment portfolios. The rise of Environmental, Social, and Governance (ESG) investing is a testament to the changing investor mindset, wherein financial returns are no longer the only consideration. The DJSI aids investors by providing a credible and standardized measure of a company's sustainability performance. In doing so, it offers a clear picture of which companies are likely to thrive in a world where sustainability challenges, from climate change to social inequalities, are increasingly affecting business operations. ”
👉 To learn more about ESG and the benefits it can bring to your company, take a look at our article.
DJSI Methodology
The DJSI (Dow Jones Sustainability Index) methodology is a set of criteria and guidelines used to assess the sustainability performance of companies.
The methodology consists of several steps:
- Selection - The initial step involves the identification of companies from various industries that are eligible for inclusion in the index.
- Questionnaire - Companies are then invited to complete a comprehensive questionnaire that covers various sustainability dimensions, such as environmental, social, and governance (ESG) factors. The questionnaire is tailored to specific industries and includes both quantitative and qualitative questions.
- Data Verification - RobecoSAM conducts a thorough review and verification of the data provided by the companies. This involves analyzing publicly available information, company reports, and other relevant sources to validate the accuracy and reliability of the data.
- Scoring - Companies are scored based on their performance across different ESG criteria. The scoring methodology assigns weights to each criterion based on its importance and relevance to the industry. The scores are calculated using a combination of absolute and relative measures.
- Index Construction - The companies with the highest scores within each industry are selected for inclusion in the DJSI. The index is rebalanced annually to ensure that it remains representative of the sustainability leaders in each industry.
The DJSI methodology aims to provide investors with a comprehensive and objective assessment of companies' sustainability performance. It helps identify companies that demonstrate strong ESG practices and are committed to long-term sustainable development.
Criteria for inclusion in the DJSI
To be considered for inclusion in the DJSI, companies must meet certain criteria related to sustainability. These criteria are based on a comprehensive assessment of economic, environmental, and social factors. The assessment evaluates companies on various dimensions, including corporate governance, risk management, climate change strategies, environmental performance, labor practices, human rights, and stakeholder engagement.
Companies are selected for inclusion in the DJSI based on their sustainability scores, which are determined through a rigorous evaluation process. This process involves analyzing a company's sustainability practices and performance, comparing it with industry peers, and benchmarking against global standards.
While the specific criteria may vary slightly each year, the assessment generally focuses on the following areas:
- Economic Dimension - This includes corporate governance, risk management, and financial performance. Companies are evaluated on aspects such as board independence, executive compensation, transparency, and financial stability.
- Environmental Dimension - Companies are assessed on their environmental management practices, resource efficiency, climate change strategies, and biodiversity conservation efforts. Factors considered may include greenhouse gas emissions, energy consumption, water usage, waste management, and environmental reporting.
- Social Dimension - This category evaluates a company's performance in areas such as labor practices, human rights, supply chain management, and stakeholder engagement. Companies are assessed on aspects like employee health and safety, diversity and inclusion, labour standards, community engagement, and product responsibility.
- Industry-Specific Criteria - Certain industries have unique sustainability challenges and opportunities. The DJSI includes industry-specific criteria to assess companies within their respective sectors. For example, companies in the energy sector may be evaluated on their renewable energy initiatives, while those in the healthcare sector may be assessed on patient access to medicines.
Companies are scored based on their performance in each criterion, and the scores are compared with industry peers to determine inclusion in the DJSI. The assessment process is rigorous, involving extensive data collection, analysis, and verification.
💡 Companies that rank within the top 10% of their industry are selected to be a part of DJSI World. In 2022, the list consisted of 332 companies.
In addition to DJSI World, there are also regional indexes: for example DJSI Europe, Nordic, North America, and Asia Pacific. The DJSI also selects industry-specific indexes.
It should also be noted that in order to stay on the DJSI, companies must continue to make improvements to their long-term sustainability strategy.
👉 If this topic interests you, why not also take a look at our article on ESG reporting.
How is data collected?
The data collection methods typically involve a combination of self-disclosure by companies and external data sources. Here are some key aspects of data collection for the DJSI:
- Company Self-Disclosure - Companies are required to complete a questionnaire. The questionnaire covers a wide range of sustainability-related topics and asks companies to provide detailed information on their policies, practices, and performance.
- Publicly Available Information - Data is also gathered from publicly available sources such as annual reports, sustainability reports, regulatory filings, and corporate websites. This helps to supplement and verify the information provided by companies.
- Industry Benchmarking - In addition to company-specific data, industry-specific data is collected to compare and benchmark companies within their sectors. This data may come from industry associations, industry reports, or other reliable sources.
- Verification and Validation - A thorough verification process is adopted to ensure the accuracy and reliability of the data provided. This may involve requesting additional documentation or conducting interviews with company representatives. Independent assurance providers may also be involved in the verification process.
“ The data used for DJSI assessment covers a wide range of sustainability-related factors. This includes financial data, environmental performance metrics (e.g., energy consumption, greenhouse gas emissions), social indicators (e.g., employee turnover, labor practices), governance practices, and other relevant sustainability-related information. ”
It's worth noting that the specific data requirements and indicators may vary depending on the industry and region. The DJSI aims to capture a comprehensive picture of a company's sustainability performance by considering multiple dimensions and indicators.
❗️There are certain business categories that are excluded from being considered, for example: companies operating in the controversial weapons market, tobacco market, adult entertainment industry, gambling sector, and alcoholic beverage sector. Details on the thresholds for exclusion can be found here.
Can a company apply for consideration?
Companies cannot apply directly for admission into the DJSI. Selection is based on an annual assessment conducted by S&P Dow Jones Indices and RobecoSAM.
Benefits of being selected for inclusion in the DJSI
Some of the benefits of being selected for the DJSI include:
- Enhanced reputation: Being selected for the DJSI can enhance a company's reputation and brand value, as it demonstrates a commitment to sustainability and responsible business practices.
- Improved access to capital: Companies that are recognized for their sustainability performance may have improved access to capital, as investors increasingly focus on environmental, social, and governance (ESG) factors when making investment decisions.
- Increased stakeholder engagement: Being selected for the DJSI can help companies engage with stakeholders, including customers, employees, and suppliers, who are increasingly interested in sustainability and responsible business practices.
- Competitive advantage: Companies that are selected for the DJSI may have a competitive advantage over their peers, as they are recognized for their sustainability performance and may be more attractive to customers and investors.
- Improved risk management: Companies that prioritize sustainability and responsible business practices may be better equipped to manage risks, including regulatory and reputational risks, which can ultimately lead to improved financial performance.
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