WHAT is the Dow Jones Sustainability North America Index
The Dow Jones Sustainability North America Index, or DJSI North America, is a stock index that captures the top 20 percent of the largest 600 stocks in the S&P Global Broad Market Index (BMI) based on their sustainability, environmental and governance (ESG) practices.
BREAKING DOWN Dow Jones Sustainability North America Index
The Dow Jones Sustainability North America Index was created in 2005, following the creation of the Dow Jones Sustainability World Index in 1999. S&P Dow Jones Indices maintains the index in conjunction with RobecoSAM, a Zurich-based independent investment specialist that conducts detailed sustainability research on thousands of global market-cap leaders each year.
The Dow Jones Sustainability North America Index is one of a larger family of Dow Jones Sustainability Indices that launched in 1999 as the first global sustainability benchmark. Other members of the family are Dow Jones Sustainability World Index counterparts specific to Europe, Asia Pacific, Korea, Australia, Chile and emerging markets.
Many companies that become members of this index see it as an opportunity to enhance shareholder awareness of their company’s environmental efforts and issue press releases to announce their index membership. These companies often use their membership as a chance to advertise their ESG leadership
Dow Jones Sustainability North America Index Characteristics and Methodology
Dow Jones Sustainability North America Index reported 149 constituents in June 2018. As of June 19, 2018, the DJSI North America outperformed the S&P Global BMI, with five-year annualized returns of 11.87 percent compared to the S&P Global BMI’s 9.85 percent. The index reported a carbon footprint nearly 50 percent better than the more inclusive S&P Global BMI, fossil fuel reserve emissions averaged less than half of those reported for the S&P Global BMI, and the DJSI North America performed better in carbon efficiency as well.
The index is weighted based on free-float market capitalization, and changes are made annually in September based on updated sustainability scores. The corporate sustainability of each company is assessed through an intricate weighting system that looks at economic, environmental and social metrics, including:
- Risk and crisis management in the event of environmental disasters
- Supply chain standards
- Climate change mitigation
- Operational eco-efficiency
- Labor practices and human rights
- Human capital development
Candidate firms are further assessed based on media and stakeholder commentary and industry-specific criteria. Companies are reevaluated each year; those that fail to show consistent progress may be removed from the index.
Limitations of the DJSI North America
Since the DJSI North America relies upon data that companies self-report to RobecoSAM, it is important to understand that the information they provide may be biased