With Bloomberg Partnership, the Dow Jones Sustainability Index Is Changing Its Game

Authors

Kimberly Kohn, Intern, BSR; University of Pennsylvania, SAS '17; JOHN HODGES, Managing Director, BSR

Since its launch in 1999, the Dow Jones Sustainability Indices’ (DJSI) benchmarking has been a valuable measure of corporate environmental, social, and governance (ESG) performance. Each year, S&P Dow Jones Indices and RobecoSAM invite approximately 3,400 companies to complete their Corporate Sustainability Assessment (CSA) questionnaire; companies ranked within the top 10 percent of their industry are listed in the DJSI World Index. Many BSR members participate each year and are listed on the World Index.

The 2016 results were released recently, but that’s not all that will be happening: As announced earlier this year, DJSI rankings will now be accessible to Bloomberg terminal subscribers. A significant portion of the investor community, as well as benchmarked companies themselves, will now be able to view DJSI comparative sustainability performance metrics for all companies assessed.

Companies often ask BSR about the benefits of DJSI, and if it is worth the effort required—as filling out the survey can be time consuming. Our general response has been that being listed may provide reputational benefits for some companies. It is unclear how many investment dollars actually track the DJSI, but going forward the new availability of DJSI data through Bloomberg may increase investor interest.

With this blog, we want to address some of the most common DJSI-related questions we have received from our member companies this year.

Does the DJSI CSA questionnaire change from year to year?

RobecoSAM reviews the previous year’s questionnaire and makes adjustments to reflect changes in ESG trends and financial relevance. These variations may affect question weightings, documentation requirements, or criteria topics. Notable changes in 2016 include the update of questions focused on materiality and updates to the labor practice indicators and human rights criterion.

For materiality, companies are asked to identify, with supporting documentation, their top three material issues and how they are linked to business strategy. Labor practices and human rights questions have become more aligned with the UN Guiding Principles on Business and Human Rights and now assess performance, rather than written commitments. We recommend reviewing RobecoSAM’s annual presentation to understand industry-specific changes.

Are S&P Dow Jones and RobecoSAM using the questionnaire data beyond DJSI purposes?

S&P Dow Jones and RobecoSAM use the sustainability scores and data internally to develop other ESG products and services. Company-specific underlying data and documents provided in the questionnaire are kept confidential. The data is also used in-house for research purposes and informs a number of asset management offerings. Academics can request access to aggregate CSA results for sustainability studies.

Companies should know that when providing supporting documentation, they are allowed to black out confidential and sensitive information irrelevant to the survey question. Additionally, companies can review the data-use expectations in the disclosure agreement signed when completing submission.

As of now, companies’ comparative ranking within their industry and overall percentile rankings at the total and dimension levels will be available through Bloomberg terminals, thereby increasing the amount of information readily available to investors.

What is important to know if a company chooses not to participate in the DJSI?

Companies should be aware that even if they do not formally submit a CSA questionnaire, they may still be assessed. Of the 3,400 invited, between 800 and 1,000 companies submit surveys.

To meet market caps for industries, RobecoSAM uses publicly available data to evaluate companies that have elected to forgo a questionnaire submission. Because non-participating companies receive a score of zero for questions that cannot be answered based on public data, the average ranking of such companies will be lower.

With results being released on more than 300,000 Bloomberg terminals, and no distinction between active and passive participants, many investors may not understand the intricacies of the rankings. For transparency, BSR therefore believes it would be good practice for DJSI to disclose which companies actively submit questionnaires versus those benchmarked based on public data.

How can companies streamline the DJSI submission process?

As per BSR’s work with our member companies on sustainability reporting, the key is to set up integrated, cross-organizational processes for future DJSI participation. Many of our members have cited the time commitments and internal coordination requirements to participate as challenges, but these can be greatly reduced with a good strategy and system in place for yearly participation. First- and second-time participants may benefit from engaging a third party to assist with reporting capacity-building and submission, especially if internal documents require language translation.

At the end of the day, participation in the DJSI is not an easy decision. While it is a credible way for companies to put their name on the sustainability map, the reputational and financial benefits of being ranked in the DJSI—much less just participating—are still largely unknown. DJSI participation also does not replace the need for comprehensive sustainability reporting.

The availability of data on Bloomberg, however, should be a positive step forward in making the results of the survey more transparent and aligned with corporate sustainability strategies in the future. And BSR sees that as a good thing.