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September 11, 2003
Dow Jones Sustainability Indexes Add Toyota, HP, Eject DaimlerChrysler, Bank of America
    by William Baue

After its annual review, DJSI adds companies it deems as having strong sustainability performance to its index universe, and deletes companies that lag in sustainability practice.


Last week, the Dow Jones Sustainability Indexes (DJSI) announced the results of its yearly review, where it reconstitutes its indexes by adding new companies and deleting others that it sees as not having kept pace with sustainability best-practice. The DJSI World Index added more than 50 new constituents, including Toyota (ticker: TM), which jumped into the leader position for the automobile sector, and Hewlett-Packard (HPQ). More than 40 companies, including DaimlerChrysler (DCX) and Bank of America (BAC), were deleted from the DJSI World Index, which covers the top 10 percent of largest 2,500 companies in the Dow Jones World Index.

"The annual review ensures that [DJSI-based indexes] are based on an accurate and up-to-date reflection of best-practice in corporate sustainability," said Alex Barkawi, managing director of Sustainable Asset Management (SAM). SAM, headquartered in Switzerland, helps administer the DJSI.

More than 40 asset managers, which manage over 2.2 billion EUR, license DJSI information. The managers include US-based State Street Global Advisors, Switzerland-based Credit Suisse Asset Management, and Germany-based WestLB.

"The yearly assessment also gives companies an incentive for constant improvements to best-in-class sustainability performance," Mr. Barkawi added.

Toyota earned the leading position on the DJSI World Index in the automobile industry due to strong eco-efficiency performance, a proactive greenhouse gas (GHG) mitigation strategy, and high corporate average fuel economy. The Japanese car manufacturer also exhibited best practice in managing lower-carbon technologies, such as hybrid and fuel-cell technology, and maintains a strong life-cycle management of its products.

"While VW scored significantly higher in the social dimension (standards for suppliers, human rights issues in the value chain) than Toyota, Toyota seems to execute more systematically on its strategies regarding environmental issues, including recycling, efficiency and technology," according to DJSI analysts.

VW leads the auto sector on the DJSI Stoxx Index, which covers the top 20 percent of companies in the Dow Jones STOXX 600 Index in sustainability terms.

The increasing competition in sustainability performance pushed DaimlerChrysler out of the DJSI World Index.

"Poorer fuel economy, the lack of a systematic CO2 strategy, and comparatively lower improvement in the eco-efficiency of operations put pressure on DaimlerChrysler's sustainability score in the environmental dimension," said DJSI analysts. "Moreover, financial robustness impacted on the economic dimension."

Bank of America's lack of competitive performance in sustainability also resulted in expulsion from the DJSI World Index.

"Bank of America's corporate sustainability strategy is stalling: no progress is visible in corporate governance, in environmental policy/management systems, and financial products," DJSI analysts stated to SocialFunds.com.

HP reappears on the DJSI World Index, after last year's hiatus due to concerns over its merger with Compaq.

"This year however, the company has improved its sustainability performance by taking a number of steps to take advantage of the merger," in DJSI analysts' opinion. "Although HP is not as strong as the Japanese companies in the environmental performance, the company is very strong in all social criteria as well as in most economic, as for example customer relationship management, brand management, corporate governance, and code of conducts."

The review also found that the DJSI World Index outperformed the mainstream market financially since the last review in September 2002. Over this past year, the DJSI World increased by 23.1 percent (in US dollars) while the DJ World Index went up by 22.7 percent and the MSCI World rose by 21.2 percent. Such outperformance bolsters the business case for considering sustainability in investment decisions.

"Since we launched the DJSI family in 1999, there has been a significant shift in market perception of sustainability investments," said John Prestbo, editor of the Dow Jones Indexes. "A growing number of private and institutional investors are adapting economic, environmental and social criteria to reflect the impact of sustainability issues on long-term shareholder value."

 

 
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