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Why corporates’ ESG data matters to investors

Why corporates’ ESG data matters to investors

20-11-2019 | Insight
The year of 1999 gave the world the euro, the Matrix, and the world’s first ever global sustainability benchmark – the Dow Jones Sustainability Index (DJSI). The product of a landmark collaboration between S&P Dow Jones Indices and SAM (now RobecoSAM*) – the DJSI pioneered sustainable indexing and has shaped corporate sustainability practices ever since. We take a look back at its history sharing key milestones along the way.
  • Manjit Jus
    Manjit
    Jus
    Head of ESG Ratings - RobecoSAM
  • Mona Naqvi
    Mona
    Naqvi
    Senior Director, ESG Indices - S&P Dow Jones Indices
The year of 1999 gave the world the euro, the Matrix, and the world’s first ever global sustainability benchmark – the Dow Jones Sustainability Index (DJSI). The product of a landmark collaboration between S&P Dow Jones Indices and SAM (now RobecoSAM)* – the DJSI pioneered sustainable indexing and has shaped corporate sustainability practices ever since. We take a look back at its history sharing key milestones along the way.
  • Back in the 90s, few companies disclosed their exposure to ESG issues
  • The first CSA in 1999 had only 280 companies assessed, supporting the launch of the first DJSI World Index
  • Two decades later ESG investing is common parlance and USD 4.5 billion of assets are tied to the DJSI

Today, there are over 37,000 sustainable indices available worldwide, and with a 60% rise in the number between 2017 and 2018 alone, the industry is rapidly transforming. Amid this proliferation of ESG benchmarking tools, the DJSI continues to make waves as the global standard for benchmarking corporate sustainability performance, even two decades on.

A watershed moment: The launch of the DJSI

In the belief that financial analysis is incomplete without additional non-financial information, SAM (Sustainable Asset Management) was founded in 1995 as the world’s first asset manager focused exclusively on sustainable investing. At the time, however, few companies disclosed their exposure to ESG issues, if at all.

SAM analysts began reaching out to companies directly, to collect information on relatively undisclosed topics, for example, company performance on greenhouse gases, and human rights. While hopeful, this approach proved challenging and difficult to scale. From this initial and ad-hoc research, borne out of necessity, the annual Corporate Sustainability Assessment (CSA) was eventually created – in what would soon become one of the most robust and well-established processes for measuring corporate sustainability performance in the world.

To get to that point, however, the relatively young Zurich-based asset manager needed the industrial clout of a globally recognized brand to get the largest companies in the world to willingly share this information with them. The founders of SAM traveled to New York to pitch to Dow Jones Indices (now S&P Dow Jones Indices) the idea of a global sustainability index built upon the rich ESG data that would emerge. The result was a powerful partnership to create a financial product that would radically transform the sustainable investment landscape, ultimately giving rise to the Dow Jones Sustainability Indices in 1999.

In the beginning, just 280 companies provided SAM with this data, with 228 companies selected for inclusion in the first iteration of the index. At first, it was a small, self-selecting group of sustainability pioneers. Visibility was poor, and it was hard to imagine that it would develop into the leading benchmark for corporate sustainability that it is today. Twenty years on, nearly 1,200 companies actively participate in the SAM CSA, to compete for one of the top spots in the world-renowned DJSI. The CSA, which has become synonymous with the DJSI, is seen as the most comprehensive assessment of non-financial and sustainability indicators – ESG. It continues to provide a meaningful methodology for measuring corporate performance and preparedness on ESG issues.

Twenty years later: the global standard for sustainability benchmarking

Over the last two decades, the Corporate Sustainability Assessment and the DJSI have been the best-known sustainability barometers for corporates around the world. Together, they have helped corporates to bridge the gap between their sustainability journeys and maturing investor demands for data transparency against the backdrop of the rapidly evolving sustainability landscape. Each year, new CSA topics are added and the scoring methodology is enhanced to ensure it stays current and to push for advances in corporate behavior and industry standards on ESG.

The CSA frequently challenges companies on emerging ESG topics that may become part of upcoming regulatory changes, reporting guidelines, or simply the broader conversation. For instance, the CSA first explored company tax strategies in 2014, just as this matter was becoming a contentious issue in corporate responsibility circles and long before companies had started to disclose on it. The CSA is often the first time a company is asked to consider a certain sustainability topic, spurring a conversation within the company that may lead to a change in its sustainability policies, business practices, or public reporting.

Impact of the CSA and DJSI

For some companies, the CSA provided early support to help shape and develop internal sustainability practices. For others, it has provided a framework with which to think about sustainability in regions where regulations, investors and consumers lag behind in sustainability thinking.

For investors, the DJSI provided one of the first opportunities to invest in a subset of global companies that are leading sustainability practices within their respective industries. Today, there are approximately USD 4.5bn of assets in funds or other passive products tied to the DJSI.

The idea that long-term investors would flow more capital into the leading sustainability performers within the DJSI was a key selling point from that first pitch to create the world’s first sustainability benchmark more than 20 years ago in New York City.

At that time, the concept of ESG investing did not even exist, let alone the acronym which is now common parlance today. As a groundbreaking and novel contribution to the financial markets, the DJSI has had a profound impact – not just on corporate sustainability performance, but also on the way investors think about and ultimately define company value.

*Founded in 1995 as Sustainable Asset Management (SAM) and following an acquisition by Robeco in 2006, SAM was renamed RobecoSAM in 2013. Since February 2019, “SAM” is now used to market services and products of business units within RobecoSAM, which specialize in providing ESG data, ESG ratings, and ESG benchmarking.

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