What Is the Dow Jones Sustainability World Index?
The Dow Jones Sustainability World Index, or DJSI World, is a global index consisting of the top 10% of the largest 2,500 stocks in the S&P Global Broad Market Index based on their sustainability and environmental practices. The index was launched on Sept. 8, 1999, and is maintained by S&P Dow Jones Indices in conjunction with RobecoSAM, a Zurich-based investment specialist that conducts detailed sustainability research on thousands of global market capitalization leaders each year.
- The Dow Jones Sustainability World Index (or DJSI World) represents the top 10% of the biggest 2,500 companies in the S&P Global Broad Market Index based on long-term environmental, social, and governance criteria.
- Many investors seek out socially conscious investments, making the DJSI World a popular benchmark for private wealth managers.
- The index is weighted on a free-float market capitalization basis, which means market capitalization is calculated by taking the share price and multiplying it by the number of shares available in the market.
Understanding the Dow Jones Sustainability World Index
The Dow Jones Sustainability World Index (W1SGI) is part of a larger family of Dow Jones Sustainability Indices (DJSI) that launched in 1999 as the first global sustainability benchmark. The family of indices includes DJSI World counterparts specific to North America, Europe, Asia Pacific, Korea, Australia, Chile, and emerging markets.
DJSI World covers dozens of industry groups and has members in more than 20 nations. Because of increased investor appetite for socially conscious investments and corporate environmental responsibility, the index has been licensed by many private wealth managers to use as a benchmark and has billions of assets under management pegged to it.
As of Aug. 31, 2020, some of the index's top 10 constituents by weight included Microsoft Corp, Nestle, Bank of America, Alphabet Inc, and Unitedhealth Group Inc. Many companies that become members of the index see it as an opportunity to enhance shareholder awareness of environmental efforts and will issue press releases to announce their index membership and tout their environmental sustainability leadership.
Another popular sustainability index is the Dow Jones Sustainability North America Index, which includes the top 20% of the largest 600 stocks listed in the S&P Global Broad Market Index based on environmental, social, and governance practices.
DJSI World Characteristics and Methodology
DJSI World, in June 2020, reported 317 constituents and five-year annualized net total returns of 7.8%. About 47% of the benchmark's weight by market capitalization was concentrated in companies based in the United States, of which there were 59. The sector breakdown showed that 25.3% of the companies listed in the DJSI World were information technology companies. The second highest sector was health care at 21.3% and financials came in third with 12.3%.
In terms of environmental, social, and governance (ESG) disclosures, the index reported a carbon footprint (measured in metric tons of CO2 emissions per $1 million invested) about 57.7% better than the broader S&P Global BMI, the index from which DJSI World draws its constituents. Fossil fuel reserve emissions averaged nearly 21.4% of those reported for the S&P Global BMI, and DJSI World also fared better in terms of carbon efficiency.
The index is weighted based on free-float market capitalization, and changes are made once each year in September based on updated sustainability scores. Each company represented in the index has its corporate sustainability assessed through an intricate weighting system that looks at economic, environmental, and social metrics. Candidate firms are further assessed based on media and stakeholder commentary and industry-specific criteria.
Companies listed in the DJSI World are reevaluated each year. The scoring process begins in March, with new scores released in September. Those companies that fail to show consistent progress may be removed from the index. Companies may also be deleted between annual reviews if the index committee determines the company is not behaving in accordance with sustainability guidelines. A company may be excluded from the index based on a variety of ethical exclusions, including its exposure to alcohol, gambling, tobacco, armaments, firearms, nuclear power, nuclear weapons, and adult entertainment.
The index committee also reviews news stories for each company's involvement with ESG issues that might damage the company's reputation and core business. These include a wide range of issues such as human rights issues, labor disputes, workplace safety, illegal commercial practices, fraud, and environmental disasters.