Eco-Management and Auditing Eco-Mgmt. Aud. 8, 123–133 (2001) DOI: 10.1002/ema.159 WHAT DOES THE PERFORMANCE OF THE DOW JONES SUSTAINABILITY GROUP INDEX TELL US? Pontus Cerin1,* and Peter Dobers1,2 1 Royal Institute of Technology, Sweden 2 Gothenburg Research Institute, Sweden The Dow Jones Sustainability Group general DJGI does. The average market Index (DJSGI) is really a family of capitalization value of companies listed indexes used to identify and track the in the DJSGI was found to be performance of sustainably run two-and-a-half times the corresponding companies. When the DJSGI was average for those listed in the DJGI. This introduced in September 1999, it was raises some legitimate questions. Does claimed to outperform the more the superior performance of the DJSGI generalized Dow Jones Global Index reflect the greater efforts DJSGI (DJGI) with respect to market companies put into sustainability, or a capitalization growth. Corporations, dependence on asymmetric distributions NGOs and governmental agencies often in company sectors, world regions or refer to the DJSGI for illustrating that market capitalization? This paper integrating economic, environmental and therefore endeavours to illustrate the social factors into the operations and transparency of the DJSGI. Copyright management of a company increases © 2001 John Wiley & Sons, Ltd. and shareholder value and business activity ERP Environment. transparency. The DJSGI is also used by global corporations to legitimize the efforts they put into sustainability. Received 16 August 2000 However, there have been no studies Revised 15 March 2001 carried out to date that illuminate the Accepted 10 May 2001 business activity transparency of the DJSGI. This study investigates the ASSESSING ENVIRONMENTAL structure and transparency of the DJSGI PERFORMANCE compared with the DJGI. The results of this study show that the DJSGI focuses everal attempts have recently been made more on the technology sector than the to assess the environmental performance of corporations. These can be categorized * Correspondence to: Pontus Cerin, Department of Industrial S Economics and Management, Royal Institute of Technology, into three approaches: (i) holding general dis- SE-100-44, Stockholm, Sweden. cussions about environmental reports (Kolk et al., 2001; Niskanen and Nieminen, 2001; Wheeler and Elkington, 2001); (ii) addressing Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment. how environmental reports can be used to P. CERIN AND P. DOBERS guide corporations in their learning about It has been suggested recently that the DJSGI their environmental performance (Herremans will improve global transparency and bench- et al., 1999) and (iii) formulating environmen- marking, thereby improving current method- tal reports to optimize their reliability, consis- ologies for screening processes aimed towards tency and relevance (Kolk, 1999; Ljungdahl, achieving sustainability (Dobers and Wolff, 1999). It has been shown that setting environ- 2000), but they also state that mental goals (Ransom and Lober, 1999) and conducting environmental audits (Diamantis, The point is not that the Dow Jones 1999) prior to the formulation of environmen- methodology is perfect or correct. (but) tal indicators can illuminate relevant pro- that one of the global players in the finan- cesses, and experience from the US shows cial market gives legitimacy to issues that that, when institutionalized effectively, en- were previously treated as ‘soft’. The new vironmental performance indicators have index will contribute to forcing companies proven to be quite successful (Stead et al., to make transparent, report and evaluate 1998). What the three environment-assess- continuously, as well as communicate ment processes mentioned above have in their measures in the sustainable frame- common is that they provide sustainability- work (Dobers and Wolff, 2000, p 147). focussed corporations with a means to mea- sure their environmental performance, while This paper discusses the DJSGI in detail, at the same time increasing its visibility and analysing its structure, focusing on market transparency (Ball et al., 2000; Bowen, 2000). capitalization, regional and sector distribu- These methods attempt to reflect company tions compared with other Dow Jones in- sustainability from the inside out. Change can dexes. This paper attempts to increase the also be triggered by specific internal processes transparency of the DJSGI itself in the wake of within a corporation that radiate outward. claims that it enhances the transparency of These changes can be referred to as inside-out sustainability processes within international changes, and can be triggered for example, by corporations. Though the criteria used for sus- a corporation’s focussed efforts to achieve rec- tainability within the DJSGI are themselves ognized standards of accreditation such as important, they have not been examined here. ISO 14001 or the British Standard, BS 7750 After first presenting DJSGI objectives, con- (Robinson and Clegg, 1998). cepts, key attributes, assessment criteria and An inside-out approach to achieving sustain- evaluation systems, the paper then focuses on ability is by definition initiated by the corpo- sector distribution, regional distribution and ration and does not necessarily include an market capitalization of the DJSGI, comparing evaluation of the corporation itself. On the these with corresponding DJGI distributions. other hand, an outside-in approach is based on an independent evaluation and comparison of various corporations and their activities, their THE DOW JONES SUSTAINABILITY influences on a particular industrial sector, GROUP INDEX company size and even the type of internal environmental regulation (Baylis et al., 1998; I welcome the efforts of Sustainable Busi- Dobers, 1999). The recently launched Dow ness Investor in Europe to engage in- Jones Sustainable Group Index (DJSGI) at- vestors in delivering sustainable de- tempts to achieve sustainable business pro- velopment. Businesses will face many cesses from the outside in. It is claimed that challenges and opportunities as we try to the DJSGI, which includes corporations that deliver a sustainable Europe. We have al- exhibit good, active sustainability track ready seen firms that are acting in a sus- records in the areas of social, environmental tainable manner enjoy a distinct ad- and economic performance, has actually vantage over their competitors, and we shown better development than the Dow can expect this advantage to increase in Jones Global Index (DJGI) (Dow Jones, 1999a). size and frequency. Investors have an Copyright © 2001 John Wiley & Sons, Ltd and ERP Environment Eco-Mgmt. Aud. 8, 123–133 (2001) 124 DJSGI important role to play in monitoring and The DJSGI is really a family of 20 different encouraging sustainability in businesses – indexes derived from the DJGI. Five of these both for their own and for society’s sake indexes are geographical in character: the (Margot Wallstrom, EU Environment world as a whole, Europe, North America, the Commissioner on the homepage of Sus- Asia–Pacific region and the USA. Each geo- tainable Business Investors Europe in as- graphical index is then crossed with subset sociation with Dow Jones Sustainability indexes that exclude stock associated with Group Indexes and SAM Sustainability corporations involved in tobacco, gambling or Group: http://www.sbi-e.com/ [13 Febru- alcohol. Some 226 of the largest 2899 corpora- ary 2001]). tions in the DJGI have been included in the DJSGI. Selection is based on analysis and In September 1999, the Dow Jones Sustain- evaluation of information returned via ques- ability Group Indexes GmbH (a partnership tionnaire from top-level management, con- between Dow Jones Global Indexes and the tained in company policies and reports and Swiss-based SAM Sustainability Group) continuous review of stakeholder relations as launched the first global indexes for tracking seen through the relevant media. The top- the performance of sustainability-driven cor- ranked 10% of performers in each industry porations worldwide, the DJSGI. As corporate group are included in the DJSGI and subject sustainability has long been assumed to in- to annual review. The sustainability perfor- crease long-term value for shareholders, the mance of corporations included in the DJSGI DJSGI is seen as creating a ‘hard’ benchmark in 1998 has been ‘backcast’ to 1993 to chart for corporations genuinely interested in sus- their historical performance. tainability issues, rather than just superficially The DJGI on the other hand (against which canvassing the ‘soft’ issues associated with the DJSGI has been benchmarked) seeks to sustainable development (WCED, 1987; cover 80% of the market capitalization on the Dobers and Wolff, 2000, pp 147f). Though the major stock exchanges throughout the world DJSGI is committed to addressing the eco- (this figure increased to 95% in mid-2000). nomic, environmental and social elements Various exclusion factors play a role here; for underpinning sustainability, the superior instance, where non-residents are prohibited performance of pro-active, cost-effective and from controlling more then 25% of company responsible corporations is directly related to stock, then only 25% of this market capitaliza- their commitment to the following five corpo- tion is included in the DJGI. The DJGI with its rate sustainability principles (Dow Jones, 2899 companies is divided into various re- 1999a): gional indexes, which