DJSI – A temperature gauge for Sustainability Investing

On September 7, the review of the renowned Dow Jones Sustainability Index (DJSI) series will be announced. Now in its 19th year, the index family continues to be the gold standard of large cap ESG performance, and serves as an effective engagement platform for investors who want to encourage companies to improve their corporate sustainability practices.

As sustainability thinking grew in popularity, what started out as a single index, the DJSI World in 1999, gave birth to a number of regional index family members such as the DJSI Europe, the DJSI North America, and DJSI Emerging Markets, as well as a number of other index families such as the DJSI Diversified and S&P ESG Factor Weighted indices.

But it is really only very recently that we can speak of a real boom for ESG indices. The current economic and political climate combined with growing environmental concerns have spurred investors to more seriously consider Sustainability Investing. They recognize that companies with strong ESG performance make sustainable long-term investments, and that Sustainability Investing does not mean sacrificing performance.[1] And for those seeking a passive investment solution that integrates sustainability thinking, ESG indices are a natural fit.

Growth in ESG indices across regions and strategies demonstrates that global investors are exploring ways to integrate ESG factors into their investments – aiming to generate not only positive return but also positive impact. Indices are often used by global sustainability investors to define the investment universe for their region of interest and test out investment strategies with ESG indicators.[2]

Furthermore, the increasing popularity of ESG indices also reflects improved ESG disclosure and provides motivation for companies to disclose more and higher quality data, including material non-financial information, to compete with their peers. This is something that we at RobecoSAM witness first-hand via the Corporate Sustainability Assessment (CSA), our annual ESG assessment of over 3,900 listed companies. The data we collect has a multitude of uses, one of which is to determine the components of the DJSI. Participation rates in the CSA were a record high this year, with many new companies from markets where ESG is quickly gaining traction.

Investors and companies are eagerly awaiting the updated component lists to be published. Which companies will be added or deleted to the indices? What observations can be made about the state of sustainability in the corporate world? What does this mean for Sustainability Investing? These are just a few of questions and topics that the annual DJSI review will address. After all, the DJSI is not just another ESG index family, it is a temperature gauge for the state of Sustainability Investing.

[1] http://www.hbs.edu/faculty/Publication%20Files/SSRN-id1964011_6791edac-7daa-4603-a220-4a0c6c7a3f7a.pdf

[2] https://www.bloomberg.com/professional/blog/esg-indices-bringing-environmental-social-governance-data-fore-asia-globally/

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