Last Wednesday we hosted a press event in New York, where I spoke on a panel with a colleague from SAM, the firm that evaluates companies for inclusion in our Dow Jones Sustainability Indexes. The topic was corporate sustainability and sustainability indexes, with a specific emphasis on answering the following question: How can investors discern which companies are committed to a sustainability philosophy?
Here’s a look at a few of the key themes that arose from the discussions:
Corporate interest in sustainability initiatives is on the rise. Each year, SAM invites the largest 2,500 companies worldwide to participate in its annual Corporate Sustainability Assessment. To take part in this process, a company must first complete a detailed questionnaire on its economic, environmental and social practices. The number of completed questionnaires returned—this year we expect close to 800—has been growing steadily for more than a decade.
The improved response rate can be attributed in part to the changing corporate attitude toward sustainability practices. When the Dow Jones Sustainability Indexes launched in 1999, many companies didn’t see the value in investing in sustainability programs. How times have changed. Today, companies recognize the importance of sustainability credentials for everything from customer loyalty to employee recruiting to public relations. More than ever, corporates realize that sustainability leadership is often associated with good management practices—and that ultimately, sustainability practices can make and save them money.
Investors are seeking more-sophisticated tools for following sustainability-focused companies. As investors gain a better understanding of sustainability and its value, they are interested in a wider array of sustainability indexes and are gaining an appreciation for more-advanced and nuanced approaches. We’ve responded to this trend by expanding our sustainability-related offerings. For example, while our core series of sustainability indexes are weighted by market capitalization, we’re developing sustainability-score-weighted indexes, in which companies that have higher sustainability scores have a greater impact on index performance. This approach was developed based on client interest in measures that put greater emphasis on best-in-class companies.
Transparency is key. As indexes and awards for corporate sustainability proliferate, investors want to better understand the criteria and processes for evaluating and recognizing sustainability efforts. In particular, it is important for investors to understand the extent to which measurement tools are based on quantitative and other hard data, versus subjective opinion. To that end, we’ve recently published a new white paper that provides greater insight into SAM’s annual Corporate Sustainability Assessment process. The paper details how SAM’s questionnaire is structured, how the sustainability score is calculated, and how specific questions can have an impact on a company’s score. (You can email us to receive a copy of the paper.)
So, circling back to the question we posed at our press event: How can investors discern which companies are committed to a sustainability philosophy? Perhaps the best answer is: It’s getting easier. Today’s investors are fortunate to have access to a growing selection of sophisticated and transparent tools for following and evaluating sustainability-oriented companies. As these tools draw upon an ever-growing universe of companies striving to achieve corporate sustainability leadership, investors can make increasingly educated decisions about companies based upon their commitment to sustainability.