Dow Jones Sustainability Index Criteria

Information for the ethical investor

The Dow Jones Sustainability Indexes tracks the financial performance of companies engaged in generating long-term growth with an focus on social, economic and environmental concerns. Analysts for the indexes rank companies based on climate change strategies, energy consumption, human resources development, knowledge management, stakeholder relations and corporate governance. The indexes provide a vehicle for investors to evaluate the social and environmental records of potential investments in U.S., North America, Europe, Asia and Korea.

Questionnaire

Companies must fill out a lengthy questionnaire

According to Dow Jones, the most important step for a company seeking inclusion on the sustainability indexes is completion of the SAM Research questionnaire. The questionnaire is distributed to the CEOs of the world's major corporation, and asks questions according to three "dimensions"--corporate governance, environmental impacts and social policies.

Economic Dimension

Corporate governance is a component of the economic dimension.

According to a sample questionnaire posted on the SAM website, questions regarding corporate governance include whether or not golden parachutes exist, the size of audit fees, the structure of the board. Companies must disclose their branding practices, as well as their policies against bribery and corruption.

Environmental Dimension

Does your company recycle its old computers? That's sustainable.

On the questionnaire, companies must also note whether they have environmental compliance policies, whether that policy is audited, the standard by which it is audited and the percentage of a company's revenues that fall under that audit system. Companies must also disclose water use, emissions of carbon dioxide and energy consumption over several years.

Social Dimension

Protests can be bad for the corporate image.

SAM Research asks companies to disclose the differences in pay between male and female executives, whether employees are free to unionize, and whether employees are consulted on major corporate changes. The questionnaire in this section also asks whether bonuses are tied to safety, financial performance or environmental goals. Companies are evaluated on the degree to which they engage outside stakeholders.

Weighting

Did your company keep this beach clean?

Each dimension found in the questionnaire is assigned a weight. The economic dimension, for example, counts for at least 18 percent of a company's score. Industry specific criteria may add to the importance of a dimension. Environmental compliance counts for 3 percent of a company's score, with additional weight added according to the industry. Industry specific criteria may count for as much as 58 percent of a company's score.

Information sources

Bad press can hurt your standing in the rankings.

Analysts may use media reports, articles and company press releases in evaluating the sustainability of a company. Analysts will also personally contact a company to clarify certain points.

Monitoring and Verification

Answers on the questionnaire may be audited.

Companies selected to be members of the index are monitored daily for incidents that might damage a company's reputation. According to Dow Jones, "The monitoring process comprises an assessment of a company's involvement in economic, environmental or social crisis situations and compares its crisis management against its stated principles and policies." Monitoring looks for news of layoffs, environmental crises, human rights abuses and tax avoidance. Results are audited by Delloite.

References

• Dow Jones Sustainability Index; Questionnaire
• Dow Jones Sustainability Index; Weighting