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September 03, 2004
Dow Jones Sustainability Indexes Add General Electric and Drop Electrolux
    by Doug Wheat

The annual change in the DJSI is based on recent assessment of corporate economic, environmental and social performance.


Yesterday, the Dow Jones Sustainability Indexes (DJSI) announced the results of its once-a-year review of corporate sustainability best-practice. As a result, the DJSI World Index will add 38 new constituents, including General Electric (ticker: GE), Staples (SPLS), and Herman Miller (MLHR). More than 32 companies, including Electrolux (ELUX), Texas Instruments (TXN), and Amgen (AMGN), were deleted from the DJSI World Index, which covers the top 10 percent of largest 2,500 companies in the Dow Jones World Index.

"Since the DJSI inception in 1999, SAM has been gradually increasing the weighting placed on actual performance of sustainability measures and decreasing the weighting of policies and management systems," according to Alex Barkawi, Managing Director of SAM Indexes. "This trend continued in the most recent assessment for the annual review," Mr. Barkawi added. SAM Indexes, headquartered in Switzerland, is the operating company for the DJSI and is a cooperation of Dow Jones Indexes, STOXX Limited and SAM Group.

The DJSI component changes will be effective with the opening of equity markets on September 20th.

More than 40 asset managers, which manage nearly $3.6 billion, license DJSI information. The managers are primarily based in Europe, including the Merrill Lynch division in the UK, but managers in Asia and North America also license DJSI data.

"A rising number of private and institutional investors as well as asset managers have moved into the field and have rapidly increased professionalism in this market segment," said John Prestbo, Editor Dow Jones Indexes.

The DJSI World Index has a 16.1% one-year return and a 7.3% three-year annualized return through August 31, 2004. In comparison, the Morgan Stanley Capital Index (MSCI) has a 15.6% one-year return and a 6.2% three-year annualized return. According to Mr. Barkawi, the DJSI World Index primarily consists of large capitalization stocks and thus its recent financial performance trails the broader Dow Jones World Index. Small- and medium-capitalization stocks as a class have outperformed large-capitalization stocks over the last several years.

About 35 percent of the market capitalization of the new DJSI World Index is in US-based companies versus more than 50 percent in Dow Jones World Index.

Selection for the DJSI is a point of pride for many companies that want to be at the forefront of corporate sustainability.

"We are seeing a growing number of firms integrating DJSI membership into their sustainability objectives," said Mr. Barkawi.

Out of the more than 300 companies in the DJSI World Index, 74 companies have been part of the index since its inception in 1999. These companies include 3M (MMM), Adidas (ADSN.DE), Barclays (BARC.L), Canon (CAJ), Novozymes, Procter & Gamble (PG), Tokyo Gas, and Westpac.

A notable addition to the DJSI World Index this year is General Electric Co. GE is perennial concern for social investors due to their nuclear power business and their pollution remediation efforts regarding the Hudson River.

"GE entrance into the DJSI was based on a number of sustainability strengths of the company. Examples include GEs position with regard to lower-carbon power generation technologies such as gas turbines, as well as its activities in the wind and solar sector, "according to Mr. Barkawi. "GE also benefited from a strong position in human capital development, talent attraction and retention, as well as strategic planning," he continued.

"The Index recognizes GE's commitment to being a 'good' as well as a 'great' company," said Jeff Immelt, GE's Chairman and CEO.

A notable deletion from the DJSI is Electrolux, the Swedish appliance maker. Electrolux has generally been considered a leader in corporate sustainability for many years.

Mr. Barkawi noted that there is no particular factor that led to the deletion Electrolux but that the furnishings and appliance sector is very competitive in terms of sustainability and that Herman Miller edged them out.

As part of the review, DJSI leaders are named in each of 18 market sectors. In 4 of the sectors there was a change in leadership. Statoil (Sri0213), of Norway, replaced BP (BP), at the top of the energy sector. Toyota (TM), Intel (INTC), Unilever(UN), Novozymes, and Procter & Gamble maintained leading positions.

 

 
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