What Is the Dow Jones STOXX Sustainability Index?
The Dow Jones STOXX Sustainability Index was a stock index, first published in 1999, which focused on European companies that score highly on environmental, social, and governance (ESG) ratings. It was discontinued in 2010 after Dow Jones terminated its collaboration with STOXX. However, both companies continue to offer other ESG-oriented stock indexes under different names, including ones with a similar European focus.
- The Dow Jones STOXX Sustainability Index was a stock index offered between 1999 and 2010.
- Its purpose was to capture European companies on the leading edge of environmental sustainability practices.
- The administrators assigned a sustainability score to companies in the Dow Jones STOXX 600 Index.
- Those with the highest scores made the index.
- Today, there are a variety of sustainability stock indexes offered by Dow Jones and STOXX.
Understanding the Dow Jones STOXX Sustainability Index
The Dow Jones STOXX Sustainability Index resulted from a collaboration between Dow Jones & Company and two Swiss-based firms: STOXX and RobecoSAM. Its purpose was to capture European companies on the leading edge of environmental sustainability practices.
To accomplish this, the administrators assigned a sustainability score to each company based on a comprehensive rating system that examined company actions in regard to corporate governance, environmental impacts, and ongoing research and development (R&D) on environmental issues.
These companies were drawn from an investment universe equal to roughly 90% of the aggregate market capitalization of European-based companies. Of these, the selected institutions represented roughly the top 20% of companies, as determined by their sustainability scores.
In this manner, the Dow Jones STOXX Sustainability Index provided a convenient reference point for investors interested in improving the environmental standards of their portfolio, whether by selecting individual stocks from the index, or by constructing investment products such as exchange-traded funds (ETFs), which use the index as their benchmark.
The Dow Jones STOXX Sustainability Index tracked the performance of the top 20% of companies leading their industry in terms of sustainability from the Dow Jones STOXX 600 Index.
In 2009, Dow Jones & Company terminated its partnership with STOXX, leading the Dow Jones STOXX Sustainability Index to be discontinued and other indexes to take its place.
Dow Jones STOXX Sustainability Index Successors
Today, there are many indices available that are marketed under the general umbrella of the Dow Jones Sustainability Index family. These include various region- and country-specific indexes for areas such as Korea, Chile, North America, and the Asia-Pacific region.
Likewise, STOXX has numerous sustainability indexes of its own, covering specific regions and select categories and sectors.
In terms of indexes focused on European companies with leading environmental sustainability practices, Dow Jones and STOXX offer the following:
- Dow Jones Sustainability Europe Index
- STOXX® Europe Sustainability
Real-World Example of the Dow Jones STOXX Sustainability Index
The Dow Jones Sustainability Indexes are updated on an annual basis in December. To form the indexes, S&P Global invites approximately 4,500 publicly traded companies to participate in their Corporate Sustainability Assessment (CSA), a questionnaire that S&P Global uses to calculate each company's sustainability score on a scale of 0 to 100.
The assessed companies are then ranked within their respective industries and the highest-scoring companies within each industry are selected for the indexes. The top 10% are included in the global index, while the top 20% are added to regional indexes and the top 30% are selected for country indexes.
The North American Dow Jones Sustainability Index, for example, is comprised of the top 20% of the 600 largest U.S. companies in the S&P Global Broad Market Index based on their sustainability scores. As of March 31, 2023, this index’s largest holdings consisted of some of the United States’ largest and most well-known firms, including Microsoft, Nvidia, Alphabet, Visa, and Procter & Gamble.
How does the Dow Jones Sustainability Index work?
Dow Jones analyzes companies based on various factors, including their corporate governance, supply chain standards, labor practices, and efforts to tackle climate change, and then puts those deemed most "sustainable" into its index. In theory, if you invest in a company that makes the cut, you own stock with leading environmental sustainability practices.
Why is the Dow Jones Sustainability Index important?
Indexes focused on sustainability help raise awareness of the importance of safeguarding the environment, promoting social well-being, and thinking of future generations. The more that pop-up, the more it becomes clear that investors really care about these issues.
How do you get listed in the Dow Jones Sustainability Index?
To be included in a Dow Jones Sustainability Index, companies need to achieve a high total sustainability score for their industry, based on the annual S&P Global Corporate Sustainability Assessment (CSA). S&P Global invites approximately 4,500 companies to participate in their CSA questionnaire and the highest scorers make the index. The top 10% are included in the global index, while the top 20% are added to regional indexes and the top 30% are selected for country indexes.
The Bottom Line
The Dow Jones STOXX Sustainability Index was made up of European companies leading the way in protecting the environment and not depleting natural resources. Scores were assigned to companies based on their corporate governance, environmental impacts, and ongoing research and development (R&D) on environmental issues and the highest-ranked ones made the index.
After Dow Jones exited its joint venture with STOXX, this particular index was discontinued. However, today there are many just like it as investors increasingly look to incorporate environmental factors into their decision-making criteria.