Dow Jones Sustainability North America Index: Explained | TIOmarkets
BY TIO Staff
|July 5, 2024The Dow Jones Sustainability North America Index (DJSI North America) is a stock index that tracks the performance of the top 20% of the 600 largest Canadian and United States companies in the S&P Global Broad Market Index (BMI) that lead the field in terms of sustainability. This index is a key reference point for investors and companies alike who are interested in how companies are managing their economic, environmental, and social impacts and fostering long-term shareholder value.
Created by S&P Dow Jones Indices, a division of S&P Global, and RobecoSAM, a specialist in sustainable investing, the DJSI North America is part of the larger family of Dow Jones Sustainability Indices (DJSI). These indices are based on an annual Corporate Sustainability Assessment (CSA) that evaluates companies based on a variety of sustainability metrics.
History and Purpose of the DJSI North America
The DJSI North America was launched in September 2005 to meet the increasing demand for reliable and objective benchmarks that could be used to manage sustainability portfolios. It was created with the aim of providing a robust tool for investors looking to gauge the sustainability performance of North American companies, and for companies seeking to understand and improve their own sustainability practices.
Since its inception, the DJSI North America has played a significant role in driving the adoption of sustainable business practices. It has provided a clear and transparent benchmark for companies to measure their sustainability performance against their peers, and has encouraged companies to improve their sustainability practices in order to be included in the index.
The Role of the DJSI North America in Sustainable Investing
The DJSI North America plays a crucial role in the field of sustainable investing. It provides a benchmark for investors who want to invest in companies that are leading the way in sustainability. By investing in the companies included in the DJSI North America, investors can align their investments with their values, while also potentially achieving competitive returns.
Furthermore, the DJSI North America provides a tool for investors to assess the sustainability performance of companies. The index is based on a comprehensive assessment of companies' sustainability performance, which includes factors such as corporate governance, environmental performance, human rights, and labor practices. This allows investors to make informed decisions about which companies to invest in based on their sustainability performance.
Impact of the DJSI North America on Companies
The DJSI North America also has a significant impact on the companies that are included in the index. Being included in the DJSI North America is a recognition of a company's sustainability performance, and can enhance a company's reputation among investors, customers, and other stakeholders.
Moreover, the process of being assessed for inclusion in the DJSI North America can help companies identify areas where they can improve their sustainability performance. The Corporate Sustainability Assessment (CSA) that is used to determine which companies are included in the index provides a comprehensive evaluation of a company's sustainability practices, and can provide valuable insights for companies looking to improve in this area.
Methodology of the DJSI North America
The DJSI North America is based on the S&P Global Broad Market Index (BMI), which includes the largest 600 North American companies. The top 20% of these companies in terms of sustainability performance are included in the DJSI North America.
The sustainability performance of companies is assessed using the Corporate Sustainability Assessment (CSA), an annual survey conducted by RobecoSAM. The CSA evaluates companies based on a variety of sustainability criteria, including economic, environmental, and social factors. The companies that score the highest on the CSA are included in the DJSI North America.
Corporate Sustainability Assessment (CSA)
The CSA is a comprehensive assessment of a company's sustainability performance. It is based on a questionnaire that covers a wide range of sustainability criteria, including corporate governance, environmental performance, human rights, labor practices, and more.
The CSA is conducted annually, and the results are used to determine which companies are included in the DJSI North America. The CSA is a rigorous assessment, and companies must demonstrate strong performance across all areas of sustainability in order to be included in the index.
Weighting of the DJSI North America
The DJSI North America is a market capitalization-weighted index, which means that the larger a company's market capitalization, the greater its impact on the index. However, the weighting of companies in the index is also influenced by their sustainability score, as determined by the CSA.
This means that a company with a high market capitalization but a low sustainability score may have less impact on the index than a smaller company with a high sustainability score. This approach ensures that the companies that are leading the way in sustainability have a significant impact on the index, regardless of their size.
Key Features of the DJSI North America
The DJSI North America has several key features that set it apart from other indices. One of these is its focus on sustainability. Unlike traditional indices, which primarily consider financial performance, the DJSI North America takes into account a wide range of sustainability criteria, making it a more holistic measure of a company's performance.
Another key feature of the DJSI North America is its transparency. The criteria used to assess companies' sustainability performance are publicly available, and the results of the CSA are published annually. This transparency allows investors and companies alike to understand exactly how the index is calculated, and what it means to be included in the index.
Focus on Sustainability
The DJSI North America's focus on sustainability sets it apart from other indices. The index is based on a comprehensive assessment of companies' sustainability performance, which includes factors such as corporate governance, environmental performance, human rights, and labor practices.
This focus on sustainability means that the DJSI North America provides a more holistic measure of a company's performance than traditional indices. It allows investors to invest in companies that are not only financially successful, but also responsible in their treatment of the environment, their employees, and the communities in which they operate.
Transparency of the DJSI North America
The DJSI North America is also notable for its transparency. The criteria used to assess companies' sustainability performance are publicly available, and the results of the CSA are published annually. This allows investors and companies alike to understand exactly how the index is calculated, and what it means to be included in the index.
Furthermore, the transparency of the DJSI North America encourages companies to improve their sustainability practices. By making the criteria for inclusion in the index publicly available, the DJSI North America provides a clear benchmark for companies to measure their sustainability performance against. This can motivate companies to improve their sustainability practices in order to be included in the index.
Performance of the DJSI North America
Since its inception, the DJSI North America has demonstrated competitive performance compared to other indices. This suggests that investing in companies that are leading the way in sustainability can be a sound financial strategy.
Moreover, the DJSI North America has shown resilience during periods of market volatility. This is likely due to the fact that companies with strong sustainability practices are often better equipped to manage risks and seize opportunities, making them more resilient in the face of market fluctuations.
Comparison with Other Indices
The performance of the DJSI North America can be compared to that of other indices to assess its relative performance. Over the years, the DJSI North America has often outperformed other indices, suggesting that investing in sustainability can yield competitive returns.
For example, a study conducted by RobecoSAM found that the DJSI North America outperformed the S&P 500 by 1.5% per year from its inception in 2005 to 2014. This suggests that investing in the companies included in the DJSI North America can be a sound financial strategy.
Resilience During Market Volatility
The DJSI North America has also shown resilience during periods of market volatility. During the financial crisis of 2008, for example, the DJSI North America outperformed the S&P 500, suggesting that companies with strong sustainability practices are more resilient in the face of market fluctuations.
This resilience is likely due to the fact that companies with strong sustainability practices are often better equipped to manage risks and seize opportunities. They may be more efficient in their use of resources, have stronger relationships with their stakeholders, and be better prepared for regulatory changes, all of which can help them navigate volatile markets.
Conclusion
The Dow Jones Sustainability North America Index is a powerful tool for investors and companies alike. For investors, it provides a benchmark for sustainable investing, allowing them to align their investments with their values while potentially achieving competitive returns. For companies, it provides a clear and transparent benchmark for sustainability performance, encouraging them to improve their practices in this area.
With its focus on sustainability, its transparency, and its competitive performance, the DJSI North America is a key reference point in the field of sustainable investing. It demonstrates that investing in sustainability is not only good for the planet and its people, but can also be good for the bottom line.
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