Dow Jones Jumps Into Social Responsibility Derby

April 01, 1999

A new index was launched Sept. 8 by Dow Jones Indexes and Zurich-based researcher Sustain-able Asset Management to measure the world's socially responsible companies that offer long-term returns.

Sustainable Asset Manage-ment, or SAM, has used Dow Jones Global Index's largest 2,000 companies by market capitalization to select 229 companies for the new Dow Jones Sustainability Group Index. SAM has selected the companies based on their com-mitment to the environment, innovative technology, corporate governance, shareholder relations and social well-being.

Companies in 68 industries in 22 countries have made the grade.

The main $4.3 trillion global sustainability index will be divided into North America, Europe, Asia-Pacific, and U.S. regional indexes.

Fund managers who use the indexes as a benchmark will also be able to select sub-indexes that screen out alcohol, gambling, tobacco, or all three activities.

The research for the indexes will be carried out by sending annual questionnaires to companies, as well as by scrutinizing company reports and media archives.

SAM said it is looking for companies that enhance share-holder value by adopting environ-mental and other targets in their business plans. Accountants PriceWaterhouseCoopers will re-view the processes that SAM uses annually.

SAM, formed in 1995, said that an historical record of more than five years -Jan. 1, 1994, to June 30, 1999 - shows the new Dow Jones Sustainability Group Index (DJSGI) managed a 137% return, compared with the Dow Jones Global Index's 96% return.

What's more, the higher returns were achieved at only slightly greater market volatility than the Dow Jones Global Index or similar regional indexes such as the U.S. S&P 500 index, SAM said.

The sustainability index family "aims to encourage investors to think more about sustainability issues," which will support those enterprises long-term, said Reto Rinnger, managing director of SAM.

There were 600 responses to the questionnaire and Rinnger hopes more people will return forms over time.

No industry is shunned from consideration in the indexes, although a tough line has been adopted on arms manufacturers. Any company whose arms trade accounts for more than 50% of total annual revenue will be disqualified from the index. Any companies whose arms trade is below 50% will be represented but will have their market capitalization reduced by the proportion of revenue occupied in arms manufacture.

SAM declined to name the companies in the new index. But SAM confirmed that initially 73 industries of companies in 33 countries were polled, and corporations in 11 countries failed to respond or made inadequate attempts to do so, mainly in emerging markets.

SAM confirmed that five industries not currently represented in the index are residential housing construction, biotechnology, mixed conglomerates, household durable products, and aerospace.

Top U.S. aviation groups and a U.K. construction group are among those who failed to submit questionnaires after several reminders from SAM. The company declined to name the companies.


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