The DJSI – Analytical Game Changer in 1999 – Sustainable Investing Pacesetter in 2014

by Hank Boerner – Chairman – Chief Strategist, G&A Institute

updated with information provided to me by RobecoSAM for clarification on 17 September 2014.

It was 15 years ago (1999) that an important — and game-changing  “sustainability investing” resource came in a big way to the global capital markets; that year, S&P Dow Jones Indices and Robeco SAM teamed to create the Dow Jones Sustainability Indices. This is described by the managers as “…the first global index to track the financial performance of the leading sustainability-driven companies worldwide,” based on analysis of financially material economic, environmental and social (societal) factors. Breakthrough, game-changing stuff, no?

Note “financially material” – not “intangible” or “non-financial,” as some capital market holdouts initially (and continue to) described the sustainable investing approach.  There were but handfuls of “sustainability-driven” companies in world capital markets for selection for the World benchmark.  1999 — -that year the Global Reporting Initiative (GRI) was assembling its first comprehensive framework for corporate reporting (G#) byond the numbers alone.  Interfaith Center for Corporate Responsibility (ICCR) was a steadily maturing organization mounting proxy campaigns to challenge the risky behavior of major companies that were polluting the Earth.  The Investor Responsibility Research Center (IRRC) was the go-to source for information on corporate behaviors, particularly related to corporate governance issues.  (And CG issues were rapidly expanding – the governance misbehaviors of unsustainable companies such as of Enron, WorldCom, et al, were not yet as evident as when they collapsed three years later.). Robert Monks and Nell Minow were active in Hermes Lens Asset Management, continuing to target poorly managed companies and encouraging laggard CEOs to move on. (Monks’s book, “The Emperor’s Nightingale,” was just out that year.)

Over the next 15 years, the managers of DJSI benchmarks steadily expanded their analysis and company-picking; the complex now offers choices beyond “World” —  of Dow Jones Sustainability Asia Pacific; Australia; Emerging Markets; Europe; Korea; and North America.

A handful of “sustainability-driven” companies have been aboard “World” for all of the 15 years; this is the honors list for some investors:  Baxter International (USA); Bayer AG; BMW; BT Group PLC; Credit Suisse Group; Deutsche Bank AG; Diageo PLC; Intel (USA); Novo Nordisk; RWE AG; SAP AG; Siemens AG: Storebrand; Unilever; United Health Group (USA).  Updated:  And Sainsbury’s PLC.

Though the DJSI indices have been availble to investors for a decade-and-a-half, it is only in the past few years that we hear more and more from corporate managers that senior executives are paying much closer attention.  “The CEO wants to be in the DJSI,” we frequently hear now.

Each year about this time the DJSI managers select new issues for inclusion and drop some existing component companies.  Selected to be in the World:  Amgen; Commonwealth Bank of Australia; GlaxoSmithKline PLC.  Out of the DJSI World:  Bank of America Corp; General Electric Co; Schlumberger Ltd.

DJSI managers follow a “best-in-lcass” approach, looking closely at companies in all industries that outperform their peers in a growing number of sustainability metrics.  There are about 3,000 companies invited to respond to RobecoSAM’s “Corporate Sustainability Assessment” — effective response can require a considerable commitment of time and resources by participating companies to be considered.  Especially if the enterprise is not yet “sustainability-driven.”  We’ve helped companies to better understand and respond to the DJSI queries; it’s a great exercise for corporate managers to better understand what DJSI managers consider to be “financially material.”  And to help make the case to their senior executives (especially those wanting to be in the DJSI).

updated informationRobecoSAM invites about 2,500 companies in the S&P Global Broad Market Index to participate in the assessment process; these are enterprises in 59 industries as categorized by RobecoSAM, located in 47 countries.

The new G$ framework from GRI, which many companies in the USA, EU and other markets use for their corporate disclosure and reporting, stresses the importance of materiality — it’s at the heart of the enhanced guidelines.  The head of indices for RobecoSAM (Switzerland), Guido Giese, observes:  “Since 1999, we’ve heled investors realize the financial materiality of sustainability and companies continue to tell us that the DJSI provides an excellent tool to measure the effectiveness of their sustainability strategies.”

Sustainability strategies — “strategy” comes down to us through the ages from the Ancient Greek; “stratagem”…the work of generals…the work of the leader…generalship…”  Where top leadership (and board) is involved, the difference (among investment and industry peers) is often quite clear.

At the S&P Dow Jones  Index Committee in the USA, David Blitzer, managing director and chair of the committee, said about the 15 years of indices work: “Both the importance and the understanding of sustainability has grown dramatically over the past decade-and-a-half…the DJSI have been established as the leading benchmark in the field…:”

The best-in-class among the “sustainability-driven” companies that we see in our close monitoring as GRI’s exclusive Data Partner in the USA, UK and Ireland, the company’s senior leadership is involved, committed and actively guiding the company’s sustainability journey.  And that may be among the top contributions to sustainable investing of DJSI managers over these 15 years.

Congratulations and Happy Anniversary to RobecoSAM and S&P Dow Jones Indices (a unit of McGraw Hill Financial).  Well done!  You continue to set the pace for investors and corporates in sustainable investing.

Flash Report: 72% of S&P 500 Companies Now Publishing Sustainability / Responsibility Reports

by Hank Boerner – Chairman G&A Institute

For the past several years the G&A Institute team has been tracking and analyzing the disclosure / reporting trends of the companies included in the S&P 500 (r) Index managed by McGraw Hill Financial.

We’re seeing a dramatic escalation of sustainability reporting by the leading companies in American business (those included in the index/benchmark)..

In year 2013, our analysis shows 72% of the S&P 500 published in some form a sustainability or responsibility (or “citizenship”) report.

In 2012, our analysts reported that just over half (53%) were reporting. In 2011, the first year of our analysis, we found just under 20% of S&P 500 companies were publishing reports.

Stated another way —

– that means that in 2011, 80% of the Index companies were not reporting;
– in 2012, we reported that for the first time more than half of the S&P 500 were reporting…and
– now for 2013, the proportion is reversed from 2011, with only 20% not reporting.

These are dramatic findings, which demonstrate that at least at the top ranks of the American corporate sector, boards and managements are developing sustainability strategies, organizing internally, operationalizing the strategies, creating teams, engaging with third parties, and achieving significant gains in reducing energy use, waste, emissions, etc.

And all of these efforts comprise the content of the structured report that these companies are now publishing.

Trend to watch: As these leading American companies focus on their supply chain, suppliers are increasingly requested to provide information on their operations to the major customer. We believe that over the coming year we will see similar reporting trends beyond the S&P 500 companies, particularly in key industries and sectors where the customers are requesting reporting (auto, electronic, apparel, retail, food, agriculture, mining, others).

We thank our talent corps of interns who worked diligently over the past year on the S&P 500 project:

Qi (Ella) Chen – Columbia University
Siyuan Fang- Columbia
Colleen Gearns – New York University (2013 graduate)
Anna Gunther – Columbia
Selene Lawrence – Hunter College, CUNY
Yekta Karimi – Columbia

Louis Coppola, EVP of G&A, has been the architect and coordinator of the S&P 500 Index analysis projects for 2011, 2012 and 2013.  Well done, team!

There’s more information about the S&P 500 companies and their reporting activities on our corporate web site — www.ga-institute.com

To keep in mind: The S&P 500 is the broadest barometer of US corporate equities and the US economy, and represents about 80% coverage of available market capitalization. From the investor point-of-view, more than US$5 trillion in assets is benchmarked to the index, with indexed assets being $1.6 trillion of the total. The S&P 500 is a very important capital market resource – and, it’s a great event when a US company is included in the S&P 500.

For the record, the S&P 500 is managed by S&P Dow Jones Indices, a unit of McGraw-Hill Financial. The index is a registered trademark.