What Is the Dow Jones Sustainability North America Index?
The Dow Jones Sustainability North America Index is a stock market index made up of North American companies identified as sustainability leaders. The index is comprised of the top 20% of the largest 600 North American stocks in the S&P Global Broad Market Index (BMI), which is based on long-term economic, environmental, and social criteria. Established in 1998, it is operated by S&P Global and is part of the suite of Dow Jones Sustainability Indexes.
- The Dow Jones Sustainability North America Index comprises the top 20% of the largest 600 North American companies in the S&P Global BMI based on long-term economic, environmental, and social criteria.
- It is part of a larger family of Dow Jones Sustainability Indexes, which represent different regions and countries.
- The index launched at the end of December 1998 and is weighted by a modified market capitalization.
- Companies on the DJSI North America are chosen through a complicated weighting system to identify the most sustainable companies in each industry.
- The data used by the DJSI North America is self-reported by companies, which means the information may be biased.
Understanding the Dow Jones Sustainability North America Index
The Dow Jones Sustainability Index is a collection of indexes managed by S&P Global. They were launched in the late 1990s as an agreement between Dow Jones Indexes and SAM and were the first benchmarks for global sustainability. Their focus is to evaluate the sustainability of various public companies.
Among those indices is the Dow Jones Sustainability North America Index. Also known as the Dow Jones Sustainability North America Composite Index (or DJSI North America, for short), the index was launched on Dec. 31, 1998. As noted above, it is comprised of 20% of the 600 largest North American companies in the S&P Global BMI. Their inclusion is based on long-term economic and social considerations.
The index is weighted based on a modified market capitalization and is calculated in U.S. dollars (USD) and the euro. S&P Global rebalances the index every September. As of May 31, 2022, there were 152 constituents in the index. The top three sectors were information technology (35.1%), health care (16%), and financials (10.8%). The top five holdings were:
The total return as of May 31, 2022, for the index on a one-year basis was -0.89%. It returned 13.57% after 10 years.
Investors shouldn't confuse the DJIA Sustainability North America Index 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 in North America and in the U.S., respectively.
Many companies that become members of this index see it as an opportunity to enhance shareholder awareness of their environmental efforts. They often issue press releases to announce their index membership and use the status to advertise their environmental, social, and governance (ESG) leadership.
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
One of the main criticisms about the index (and other related indexes within the group) is the potential for bias. Companies self-report information to S&P Global by completing a corporate sustainability assessment questionnaire that they are invited to take. As such, S&P Global relies on this information to be accurate and truthful.
What Does the Dow Jones Sustainability Index Measure?
The Dow Jones Sustainability Index measures a weighted average of the stock prices of major companies that meet certain sustainability criteria. In addition to the DJSI World Index, there are also several DJSI sub-indexes that measure only the companies in a specific country or region. The DJSI family also includes sub-indexes that exclude alcohol, tobacco, firearms, or adult entertainment.
How Do You Invest in the Dow Jones Sustainability Index?
You can invest in the Dow Jones Sustainability Index North America by buying shares of an index fund that targets the DJSI North America. These funds invest in the shares of companies represented on the index, effectively mirroring the performance of the index. For example, the iShares Dow Jones Global Sustainability Screened UCITS ETF contains a basket of companies represented on the DJSI, excluding those involved in alcohol, tobacco, firearms, and gambling.
What Are the Criteria for Companies on the Dow Jones Sustainability Index?
The Dow Jones Sustainability Index is comprised of companies included in the S&P Global BMI that have been assessed for sustainability factors, according to the S&P Global Corporate Sustainability Assessment. Only the companies with the highest sustainability scores from each industry are represented in the DJSI indexes. The composition of each index is reviewed every September, based on each company's ESG scores.