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Launched in 1999, DJSI (S&P's Dow Jones Sustainable Indices) were the world's first indices to track the financial performance of leading sustainability-driven companies worldwide. Its integrated assessment of governance & economic, environmental and social criteria with a strong focus on long-term shareholder value. The rules-based methodology uses primary research based on the result of CSA (Corporate Sustainability Assessment published by RobecoSAM). The DJSI is published on a yearly basis to review component selection and continuous controversy monitoring of companies with the assurance services provided by Deloitte. The Index is labeled the "gold star for corporate sustainability" by Securities Magazine. (2017) The DJSI Selection Rules is published by S&P Global as below.
DJSI Selection Rules
Invited index universe*: Companies are only eligible for selection if their score is at least 45% of the highest score within the respective index universe.
Best-in-class selection: Select 10% best companies per industry for World (20% for World Enlarged / regional indices, 30% for country indices, 10% for Emerging Markets).
Error margin*: Select companies outside the best-in-class interval if they are within an absolute 0.6 score distance of the last company selected in the respective industry in step 2.
Buffer rule: Select existing components if they are within the top 15% of their industry for World (30% for World Enlarged / regional indices, 45% for country indices, 15% for Emerging Markets).
*Note: Earlier this year, the DJSI methodology was undated to ensure the indices continue to meet their stated objectives using a best-in-class approach whereby companies are scored based on a range of financially relevant and industry-specific ESG considerations.
The establishment of DJSI aims to provide institutional investors with channels and benchmarks for understanding the ESG performance of listed companies. Companies selected by DJSI have demonstrated their ability to create long-term value for investors—the ability to coordinate and manage risks and opportunities in the economic, environmental, and social fields through good governance and business practices.(syntaoCSR, 2019)
The SAM Corporate Sustainability Assessment (CSA) is an annual evaluation of companies’ sustainability practices. Each year the CSAassess over 7'300 companies around the world. The CSA focuses on criteria that are both industry-specific and financially material and has been doing so since 1999.
The 2020 DJSI/CSA results were announced on 13 November 2020. The SAM Corporate Sustainability Assessment (CSA) is open to the largest companies globally. Over 3,500 publicly traded companies are invited in 2020. This year saw a record 18.9% increase in the number of companies actively completing the CSA which consists of a rigorous questionnaire assessing both public and non-public data submitted by participants.
However, in China, the invitation rate in 2020 is only 29%, and there are only 28 participants out of the 96 companies being invited. Among the invited companies, the real estate sector accounted for 10.18%, the banking sector accounted for 9.73%, and other sectors included Tencent, Ali, Haidilao, Qingdao, and other star companies.
Source: SAM, S&P Global
With more available information and resources in reviewing the corporates’ sustainability, the CSA is developing and grow to be more comprehensive and specific in details for certain industries. This signals more challenges for selected participants to develop a growing sensitivity towards the new standard.
We saw some deletion in the emerging market this year of the component list in S&P’s DJSI. This could be the result of a lower score or lack of participation in certain industries or companies.
Source: SAM, S&P Global
The reasons for a lower score or less participation rate in CSA might be as following:
1) Companies might be unable to meet the updated criterions set by the CSA this year.
a) The updates on CSA this year requires more coverage and exposure for certain industries in demands of clearer disclosure, data and privacy protection upgrading attention and
b) More publicly available information as evidence of good practice could be awarded with additional points.
2) Challenges might raise after S&P Dow Jones Indices (“S&P DJI”)’s Modification to the Methodology of the Dow Jones Sustainability Indices.
3) Lack of understanding towards the DJSI is likely to result in a company’s failure to complete the CSA survey in a competitive way. Since the release of DJSI over the years, the evaluation standards have been continuously updated and increasingly strict, while competition has become increasingly fierce. CSA scores have been constantly refreshed, reflecting the efforts of many companies in strengthening sustainable development management.
4) Lower scores when non-participants are being evaluated with the publicly available information: in addition to evaluating the companies that participated in the CSA questionnaire, SAM also evaluates some companies that have not completed the questionnaire. The evaluation of the latter is usually based only on public information. Obviously, the scores of companies that did not participate in the questionnaire were often lower than the ones that participated in the questionnaire.
Major Methodology Updates by CSA this year including:
a. Information security/cybersecurity IT System Availability & Governance
The criterion is now been updated to be applicable to all industries. The updates on the cybersecurity governance include the relevant board members' membership in a committee that oversees the cybersecurity strategy at the senior executive level with the necessary leadership operational, and strategic skills to understand such risks. This way enables assessment on whether cybersecurity risks are treated as strategically relevant
b. Privacy Protection
The privacy protection criterion has been expanded to more industries given the increasing prevalence and importance of the topic. The criterion now covers 32 of the 61 industries, up from 29 industries in 2019.
With more networked data and global corporate activities, companies require more diligent information handling. Therefore, the updated question asks for evidence of requisite mechanisms to ensure that companies' privacy polies are effectively implemented and including the following:
➢ Responsibilities and reporting lines systematically defined in divisions.
➢ Disciplinary measures in the event of a breach and
The question layout was reviewed for clearer disclosure. Added a new question section on the use of data for secondary purposes, where companies should disclose the percentage of users whose customer data is used for secondary purposes.
c. Innovation management
The changes made only impact questions that are included in the questionnaire of the Biotechnology, Pharmaceutical, Life Science Tools & Services, and Health Care Equipment & Supplies industries. The R&D Breakout by Innovation Phase question has absorbed four different questions following in just one table, companies can import the percentage of the R&D spent in each step of the innovation process, the average duration of each phase, and the percentage of success rate.
d. Sustainable finance
The criterion was reassessed based on additional research and simplified to allow for a better understanding of the questions. For all the Products and Services questions, the CSA has modified the layout to allow companies to breakdown their ESG products and the corresponding volumes that these products represent, whereas in 2019 these were reported as aggregates.
In 2020, the CSA added the Integration of ESG Criteria in Asset Management question, which will mirror the Integration of ESG Criteria for Asset Owners but will allow companies to comment on managed assets. This year this question has been updated to include a table that depicts the internally managed company's assets which are covered by the company's asses which are covered by company's Responsible Investment (RI) policy. Furthermore, the question now asks if third-party managed assets are covered by RI policy.
Companies are also being asked to breakdown their ESG products and the values that they represent. Therefore, companies are asked to provide their differentiated products and services, as well as the percentage of responsible investment products relative to the total AUM in the asset management section.
e. Genetically modified organisms (GMOs)
This criterion currently applies to a limited number of industries: Beverages, Food & Staples Retailing, Food Products, and Restaurants Leisure Facilities. Considering the complex and evolving landscape around GMOs, companies are expected to be transparent and publicly disclose their stance towards GMOs.
The CSA simplified this question in 2020 to allow for a clearer focus on whether companies have a public statement on their use of GMOs, which should include whether the company produces or uses GMOs in their raw materials and/or in their production process. For companies using GMOs in their products, their statement should clearly report on and evaluates the potential risks of GMOs, and states whether the company labels all products that contain GMOs. The updates also focus on the percentage of total revenues that came from GMO related products this year.
In 2020, the question was expanded to better capture companies packaging commitments. A new question of plastic packing has been added this year. Assessed companies should make it essential to find solutions to fix plastic pollution within their sustainability frameworks. Companies are being asked to report their volume of plastic packaging for the past four years and disclose details on the types of plastic that are used for this packaging (i.e. recyclable, compostable, etc.).
g. Product stewardship
The questions edited this year were Use of Recycled and Sustainably Sourced Materials and Hazardous Substances. This question requires the company to indicate the volume used of the different types of materials in their packaging. The new updates ask for the total weight and relative percentage of each type of material that comes from recycled and/or certified material. Moreover, to monitor the process, a column for the yearly target was added. The companies' revenues from hazardous substances have been asked in this year's updates rather than the percentage of products from hazardous substances. The CSA newly asked companies to report what percentage of products had undergone a risk assessment and a public link to this assessment.
h. Addressing cost burden
This year, the Fair Pricing question has been shortened. It now only asks for the year-on-year percentage net price across the company's entire portfolio. By controlling the net/list inflation across the product portfolio companies face less pushback from payors and can positively contribute to balancing healthcare budgets.
(Written by Yitong Yuan)
Securities Magazine, September 18, 2017, Top Companies Listed on Dow Jones Sustainability Index, Available at: https://www.securitymagazine.com/articles/88327-top-companies-listed-on-dow-jones-sustainability-index (Accessed on 16 Nov 2020)
S&P Global, 2020, DJSI/CSA Annual Review 2020, Available at:https://www.spglobal.com/esg/csa/csa-resources/djsi-csa-annual-review (Accessed on 16 Nov 2020)
syntaoCSR, 2019, Participate in DJSI and gain ESG advantage | ESG Special, Available at:https://mp.weixin.qq.com/s/SHchgXDCm_Pakhl-4Mcc_w(Accessed on 16 Nov 2020)
S&P Global, 2020, Annual scoring & Methodology Review: Corporate Sustainability Assessment 2020, Available at:https://portal.csa.spglobal.com/survey/documents/DJSI_AnnualScoring_Methodology_2020.pdf (Accessed on 16 Nov 2020)
S&P Global, 2020, Modification to the Methodology of the Dow Jones Sustainability Indices, Available at: www.spdji.com(Accessed on 16 Nov 2020)
SAM, 2020, Corporate Sustainability Benchmarking, Available at: https://www.spglobal.com/esg/csa/benchmarking (Accessed on 16 Nov 2020)
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