It’s that time of year again: S&P Dow Jones Indices (S&P DJI) and Sustainability Investing specialist RobecoSAM have announced the results of the annual Dow Jones Sustainability Indices (DJSI) review.
Some of the largest additions (by free-float market capitalization) to the DJSI World include Sustainable Brands member Cisco Systems, along with Royal Dutch Shell, Adobe Systems, Nissan, Bridgestone and Henkel. Other major companies, however, were removed. Intel, British American Tobacco and Target managed to remain in their respective regional indices despite being two of the largest companies to be removed from the DJSI World in the 2016 review. Samsung Electronics, on the other hand, was deleted from both its regional and the World lists.
Component lists will be published on the RobecoSAM website on Monday and all changes will become effective on Monday, September 19, 2016.
RobecoSAM invited the world’s largest 3,420 companies to participate in the 2016 Corporate Sustainability Assessment (CSA), of which 867 completed questionnaires and 1,119 were assessed based exclusively on public information, for a total of 1,986 companies analyzed. S&P DJI and RobecoSAM say that the DJSI World is the gold standard for corporate sustainability and was the first to track leading sustainability-driven companies at the time of its launch in 1999. The DJSI uses S&P DJI’s robust index methodology and RobecoSAM’s analysis of financially-relevant environmental, social and governance (ESG) factors.
“The iconic DJSI offer a great opportunity for companies to drive their sustainability performance. Moreover, the CSA addresses the right sustainability issues that support companies to remain at the cutting edge of their industry and forms the basis of new, innovative index solutions that we develop together with our partner S&P Dow Jones Indices,” said Manjit Jus, Head of Sustainability Application and Operations at RobecoSAM.
The firms say ESG integration has gone mainstream, attracting the attention of more and more investors. RobecoSAM’s database of comprehensive research regarding financially relevant sustainability information enables RobecoSAM and S&P DJI to provide tailor-made indices designed to meet investors’ growing needs for SI investment solutions. The aim of the CSA methodology is to address upcoming sustainability trends that are connected to financial performance and thus raise the bar each year. Key changes to the 2016 CSA compared to 2015 include: the addition of economic considerations to assessments of financial materiality, new criteria for impact measurement and valuation, and new human rights questions, among others.
“With 2016 likely to be the hottest year on record, investors are again reminded that companies’ environmental and sustainability efforts are crucial to their financial outcomes,” said David Blitzer, the Managing Director and Chairman of the Index Committee at S&P DJI. “The Dow Jones Sustainability Indices are comprehensive benchmarks of companies that meet RobecoSAM’s sustainability standards and give investors tools to develop global allocations that reflect sustainability factors.”
Other SB member companies to make the cut this year include Bank of America, BASF, Dow Chemical, Novozymes, SAP, Symantec and UPS.
The Corporate Sustainability Leaders
RobecoSAM identifies the top scoring company in each of the 24 industry groups (according to GICS®). SB member companies leading their industries include Nestlé SA (Food, Beverage and Tobacco) and Unilever (Household & Personal Products), among other familiar brands such as LG Electronics (Consumer Durables & Apparel), Hewlett Packard Enterprise (Technology Hardware & Equipment), Sodexo (Consumer Services), METRO AG (Food & Staples Retailing), and Swiss Re AG (Insurance).
Controversial Selections
As the firm's website explains, "RobecoSAM's research focuses on the link between sustainability and financial materiality." Specifically, it says, this means RobecoSAM seeks "the most important intangible factors that relate to companies' ability to create long-term value." The identified material factors are prioritized for each industry according to their expected magnitude and the likelihood of their impact on growth, profitability, capital efficiency and risk. While "Human Capital Management" is one of these material factors, companies mired in human rights violations seem to have found their way into the Indices.
For instance, Thai Union was named to the Dow Jones Sustainability Emerging Markets Index (not the World Index) for the third consecutive year. Boasting a ranking in the 91st percentile for Labor and Human Rights, the company has faced accusations of slavery in its supply chains, including for its Chicken of the Sea and John West brands. Despite a partnership with WWF-Australia, John West is also being challenged by its UK customers for using harmful fishing practices it had pledged to avoid. Earlier this year, Thai Union invited stakeholders to provide comments on the content and nature of its goals for its four key programs: safe and legal labor; marine conservation; responsible sourcing; and caring for communities -- and the company says it is working to improve and change its industry for the better.
On the World Index, Newmont Mining was ranked as the top mining company, which Earthworks says "highlights [the] Index's lack of credibility." The environmental non-profit says the gold miner has had a role in human rights violations at both its existing Yanacocha and proposed Conga mines in northern Peru. The latter has been long-opposed by local communities and NGOs.
“For years, Newmont has harassed, intimidated and sued community members opposing its proposed Conga mine,” said Earthworks' Mining Program Director Payal Sampat. “The Dow Jones Sustainability Index cannot be taken seriously if sustained community harassment meets its definition of ‘sustainability’.”
Earthworks noted that the DJSI's methodology has previously been criticized for its prioritization of financial performance over environmental and social sustainability, that it measures how well companies complete their evaluations rather than actual sustainability performance, and that it is a relative measure, which means that highly ranked companies have outperformed their peers but are not necessarily "good" or proactive performers.
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Published Sep 9, 2016 4pm EDT / 1pm PDT / 9pm BST / 10pm CEST