What Is the Dow Jones Sustainability (DJSI) North America Index?
The Dow Jones Sustainability North America Index, or DJSI North America, is a stock index that captures the top 20% of the largest 600 stocks in the S&P Global Broad Market Index (BMI) based on their sustainability, environmental, and governance (ESG) practices.
It is not to be confused with the Dow Jones Sustainability North America 40 Index or the Dow Jones Sustainability United States 40 Index. Those subsets deal with the top 40 sustainability-driven companies, both in the U.S. or in North America. They were launched in 2008, three years after the DJSI North America.
- The Dow Jones Sustainability North America Index (DJSI North America) tracks the ESG practices of the top 20 percent of the 600 largest stocks in the S&P Global Broad Market Index.
- ESG refers to investments highlighting good corporate governance, social responsibility, and environmental concerns.
- The Dow Jones Sustainability North America 40 Index is a subset of the DJSI that looks at the top 40 sustainability-driven companies.
- The data used by the DJSI North America is self-reported by companies. That information, therefore, may be biased.
Understanding the Dow Jones Sustainability North America Index
The Dow Jones Sustainability Index (DJSI) is a collection of indices launched in 1999 as the first global sustainability benchmarks. The focus on these Dow Jones Indices is to evaluate the sustainability of various publicly traded companies. The indices are a partnership between S&P Dow Jones Indices and RobecoSAM.
Among those indices is the Dow Jones Sustainability North America Index, which was created in 2005, in conjunction with its subdivision, Dow Jones Sustainability United States Index, following the creation of the Dow Jones Sustainability World Index in 1999.
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
As a whole, the Dow Jones Sustainability Indices are the gold standard benchmark throughout the globe for assessing the performances of many publicly traded companies.
How the DJSI Works
The Dow Jones Sustainability North America Index reported 143 constituents in Sept. 2019. As of Sept. 21, 2019, the DJSI North America posted a five-year annualized returns of 7.3%, versus the annualized return of the S&P Global BMI index of 4.2%.
The DJSI North America 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 DJSI North America 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 Dow Jones uses to evaluate 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. The top three holdings of the DJSI North America as of Sept. 21, 2019, were Microsoft (MSFT), Johnson & Johnson (JNJ), and Visa (V).
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.