Is DJSI worth the effort?
It’s spring and the birds are starting to chirp. Many corporate social responsibility and sustainability professionals are hearing chirping in their ear: "What will you be doing for the Dow Jones Sustainability Indices (DJSI) this year?"
And a follow-up question: "Is it even worth the effort?"
Last year, and this year again, more than 3,400 companies were invited to respond to the DJSI questionnaire, the Corporate Sustainability Assessment, in order to be considered for a listing in DJSI World or one of the regional indices.
Considering the size of the pool, a few other questions arise. First, how often are companies included the first year they respond? And if a company falls off the index, is it possible to make it back in?
Corporate Citizenship was provided by RobecoSAM with aggregated and anonymized data on U.S. participation in DJSI. Let’s look at RobecoSAM’s exclusive data to understand whether these statements may be true for North American companies.
More than 600 companies headquartered in the U.S. and Canada are invited to participate in the assessment for DJSI North America each year. Of the invited companies, 211 actually did respond to the questionnaire, and 336 were assessed based on public information in 2015. In 2015, 145 companies were selected into DJSI North America.
In the past decade, in addition to a small number of high performers that achieved entry with their first application, around 25 percent of companies that achieved listing did so in the second or third year that they applied.
Does that mean the being included on DJSI is easy after all?
While we do not know the reason so many companies were included in the first few of years of trying, we can make some educated guesses:
- Some companies have robust policies, performance and initiatives when they start applying. They are already at the top of their sector.
- Some sectors are quite large so there is room for many companies to be included whether they are leading or middle of the pack. DJSI was the first sustainability financial index, which means the index follows investment guidelines such as a target market cap for each sector.
Impressively, 7 percent of companies included on DJSI North America have been included for 11 years, since launch of the Index. Companies are selected for the index if they rank among the top 20 percent in their industry; existing index members are protected by a buffer rule that allows them to stay in the index as long as they belong to the top 30 percent.
Some companies drop off because they stop applying while others find that their past performance is no longer sufficient to rank even among the top 30 percent of companies and subsequently remain included in the index. Competitors could have improved more than the company has.
Or the company has not anticipated and responded to future drivers of sustainability as reflected by RobecoSAM’s addition of emerging topics over time. Sometimes companies lose their place in the index. However, re-entry is eminently possible. Many manage to bounce back quickly, with 58 percent being included again in the year following their drop out.
An annual sustainability check-up
DJSI holds a certain cache with many stakeholders and companies. Being included on a DJSI index is a top accolade. Yet companies included in the annual RobecoSAM Yearbook, listing the top 15 percent of companies globally, should be equally, if not more, proud of this accomplishment.
An important component of the yearbook is to recognize companies showing strong sustainability performance. Leading companies in each sector fall into one of four categories: included; bronze; silver; or gold. Companies included are those included in an index such as DJSI World or DJSI North America or those that perform well even if not included.
A company may be in the yearbook and not be included in the index because a sector is rather small (in a sector with five companies, the top 20 percent means selecting only the leading company). However, as the yearbook looks at the top 15 percent globally, the company might qualify (globally the sector has 20 companies, meaning three qualify).
Responding to DJSI does take meaningful effort. So why should companies subject themselves to this if they aren’t sure to be included? DJSI is the financial equivalent of an annual health physical. You have your physical to understand your current state and potential future trajectory so you can maintain or correct as necessary to have the best health possible.
Companies respond to DJSI to see where they are strong today and where they should make corrections to fare well in the future.
Through the sheer act of responding to the assessment, companies receive benefits and can:
- Benchmark against best practice as defined by the investor community
- Identify strengths and areas for improvement
- Expand the corporate responsibility team’s network across the company
- Create understanding internally about what corporate responsibility is really about
There are no guarantees for inclusion in DJSI. However, the data shows that companies, including those new to the DJSI process, can be included on DJSI.
And ultimately, DJSI helps drive internal performance. So when the bird chirps about DJSI in your ear, remember: Recognition is terrific, but strong performance is even better. .