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Sustainability Portfolio Looks Pretty Standard

September 21, 2015

Responsible investors are being converted by predominant market forces.

Today investors get their first look at the new yearís Dow Jones Sustainability Index (DJSI).† The DJSI was the first global index to analyze companies based on a set of sustainability measures.† After more than 15 years, its appearance has become more and more orthodox.†

The rating company RobecoSam has been identifying the best-in-class stocks against more than 100 environmental, social, and governance criteria since 1999.† Each year Crosslands Bulletin provides a comparison of performance against the benchmark indexes.† Religiously and ethically motivated investors thought they would uncover hidden value.† The ambition did not materialized.

Returns slid far behind the benchmark indexes.† So over time the developers shifted the features of the DJSI dramatically (see Changes in Dow Indexes Herald More To Come, 6 October 2013).

They cloned the original DJSI and issued the DJSI Diversified.† Using favorable rules for its construction, the new index is weighted according to country, sector, and size.† Sustainability ratings are adjusted rather being given as an absolute total as in the DJSI.

They applied a buffer rule to the original DJSI.† Rather than sticking to the target of selecting the top 10% of sustainability companies in RobecoSAMís industry sectors, the new rule in use last year selects existing index components ranked between 10% and 15%.† The approach minimizes turnover in the index, which investors are generally adverse to.† It also helps the companies that are already members of the index.

The changes have helped a lot although the DJSI still lags its benchmarks.† The one thing that seems to go up every year is the number of companies issuing press releases touting their inclusion on the original DJSI, or on a regional version without always making that fact clear.

2015 version
For the 2015 annual review, SAM analysts evaluated 1,845 companies ó 32 more than they examined in 2014.† Only publicly available information was used to score just 864 of them, an improvement of about 5% in percentage terms.† RobecoSAMís comprehensive questionnaires, on the other hand, were completed by 981 companies, which is up by 7% relative to last yearís ratio.

For years RobecoSAM worked hard to crack the US market.† When that failed, it entered into a cooperative venture with S&P Dow Jones Indices to offer the sustainability investment vehicle.† S&P has a towering profile in the US.† But this year RobecoSAM cannot by rule, and will not, divulge any licensee information or asset splits by region.
When the equity markets open on 21 September 2015, 30 companies will appear for the first time or reenter the DJSI.† The unfortunates lopped off the index for the upcoming 12 months number 34.† The total number of components this year is 317, down by two from the previous year (and down by 23 from 2012).† Leaders are awarded the top spot in 24 super-sectors.

The three largest additions (by float adjusted market capitalization) to the DJSI World are Bank of America Corp., Telefonica, and BHP Billiton.† Last year Bank of America was the largest company removed.† This year the largest companies removed from the index are Cisco Systems, PepsiCo, and Royal Bank of Canada.
RobecoSAM does not reveal why a component is added or deleted.† The details are shared only with the companies, which may or may not choose to reveal their performance.† Experience at Crosslands Bulletin has been that the companies opt to remain silent when asked why the fell out.†††

Leaders are awarded the top spot in 24 super-sectors.† Volkswagen is rated first in the automobile/parts industry.† Trading on 21 September along with the new DJSI, VW fell over 20% on news that US dealers should halt sales of some diesel cars (see Das Auto Dupes Social Investors, 19 September 2015).†

For information contact Guido Giese, Head of Indices, RobecoSAM,† Josefstrasse 218, 8005 Zurich, Switzerland.† Tel. +41 44 653 1800;† Fax +41 44 653 1810; E-mail:†

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