What is the Dow Jones Sustainability North America Index? Definition, How It Works, and Investment Strategies
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Summary:
The Dow Jones Sustainability North America Index encompasses the top 20% of the largest 600 North American companies in the S&P Global BMI, selected based on rigorous economic, environmental, and social criteria. This index, established in 1998, is an essential benchmark for investors seeking to align their portfolios with sustainable practices and values.
Understanding the Dow Jones sustainability North America index
The Dow Jones sustainability index (DJSI), managed by S&P Global, consists of a collection of indexes introduced in the late 1990s, initially as a collaboration between Dow Jones Indexes and SAM. These indexes serve as benchmarks for global sustainability, aimed at assessing the sustainability performance of public companies.
Overview of the Dow Jones sustainability North America index
The Dow Jones sustainability North America index, also known as the Dow Jones sustainability North America composite index (or DJSI North America), was launched on December 31, 1998. It comprises the top 20% of the 600 largest North American companies within the S&P Global BMI, selected based on their adherence to long-term economic, environmental, and social considerations.
Composition and weighting
The composition of the index is determined using a modified market capitalization methodology and is denominated in both U.S. dollars (USD) and euros. S&P Global conducts an annual rebalancing of the index every September. As of May 31, 2022, the index included 152 constituents, with significant sector concentrations in information technology, healthcare, and financials. Notable holdings encompassed Microsoft, Alphabet A, UnitedHealth Group, NVIDIA, and Procter & Gamble.
Performance
The performance of the index is a critical metric for investors interested in sustainability. As of May 31, 2022, it exhibited a one-year total return of -0.89% and a ten-year return of 13.57%.
Special considerations
Membership in the Dow Jones sustainability North America index often serves as a platform for companies to showcase their commitment to environmental, social, and governance (ESG) principles. Companies undergo rigorous assessments focusing on various sustainability metrics, including risk management, supply chain standards, climate change mitigation, operational efficiency, labor practices, and human capital development. However, a potential limitation of the index is its reliance on self-reported data from companies, introducing the risk of bias.
What does the Dow Jones sustainability index measure?
The Dow Jones sustainability index measures a weighted average of the stock prices of major companies that meet specific sustainability criteria. It includes various sub-indexes, such as the DJSI World index and region-specific indexes, and also offers exclusionary sub-indexes that omit companies involved in alcohol, tobacco, firearms, or adult entertainment.
How do you invest in the Dow Jones sustainability index?
Investing in the Dow Jones sustainability North America index can be achieved through purchasing shares of an index fund that tracks the DJSI North America. These funds replicate the performance of the index by investing in constituent companies’ shares. For instance, the iShares Dow Jones Global Sustainability Screened UCITS ETF offers exposure to companies represented in the DJSI while excluding those engaged in controversial industries.
What are the criteria for companies on the Dow Jones sustainability index?
The Dow Jones sustainability index comprises companies included in the S&P Global BMI, assessed for sustainability through the S&P Global Corporate Sustainability Assessment. Only companies with the highest sustainability scores within each industry are represented in the DJSI indexes. The composition of these indexes undergoes annual review based on companies’ environmental, social, and governance (ESG) performance scores.
Frequently asked questions
How does the Dow Jones sustainability index differ from other sustainability indexes?
The Dow Jones sustainability index is unique in its approach to assessing sustainability, focusing on long-term economic, environmental, and social criteria. It offers a comprehensive evaluation of companies’ sustainability performance and includes exclusionary sub-indexes that omit companies involved in controversial industries.
How often does the Dow Jones sustainability index rebalance?
The Dow Jones sustainability index undergoes an annual rebalancing conducted by S&P Global every September. This process ensures the index remains aligned with evolving sustainability standards and market dynamics.
What factors contribute to a company’s inclusion in the Dow Jones sustainability index?
Companies are assessed for sustainability through the S&P Global Corporate Sustainability Assessment, which evaluates various metrics such as risk management, supply chain standards, climate change mitigation, operational efficiency, labor practices, and human capital development. Only companies with the highest sustainability scores within each industry are included in the index.
Key takeaways
- The Dow Jones Sustainability North America Index comprises the top 20% of the largest 600 North American companies in the S&P Global BMI, selected based on rigorous economic, environmental, and social criteria.
- Investors can access the index through index funds, offering exposure to companies committed to sustainable practices.
- Companies included in the index undergo thorough assessments focusing on sustainability metrics, although reliance on self-reported data poses a risk of bias.
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