Can CSR Indices Make You Rich?

Last Friday, I attended a webinar by the consulting group Corporate Citizenship which focused on the Dow Jones Sustainability Index (DJSI), considered by many CSR practitioners to be one of the most prestigious measures of a company's corporate responsibility.   The webinar provided a very clear and well-constructed overview of how the various versions of the DJSI work, and was of course accompanied by a pitch for services to companies seeking to compete for a spot in the index.

Before going any further, let's talk about how indices (plural for index) work.  An index is a list of stocks considered representative of a certain market.  These selections of companies are weighted (usually, but not always, based on the total value of each company) and the resulting combination becomes a product that can be licensed by asset management companies offering investors the opportunities to keep their money in funds that mirror the index.  An index investor is making a bet that investing money in a way that mirrors an index will reap better rewards than investing in other combinations of investments.

Once the domain of socially responsible investors, sustainability indices like the DJSI seek to attract a broader and more mainstream audience based on the assumption that companies adopting sound environmental, social, and governance (ESG) practices will fare better in the markets than their less responsible counterparts (whether there are holes in this argument may be a subject for another post).  Sustainable Asset Management (SAM), the research company that actually develops the DJSI list for Dow Jones, purportedly safeguards this value proposition by focusing exclusively on ESG indicators tightly linked to economic performance.

So what do companies think about the Dow Jones Sustainability Index?  The folks from Corporate Citizenship describe it as the most "prestigious" form of recognition for good CSR.  While it is true that the DJSI carries more weight than the  Corporate Knights,  CRO, Ethisphere, or RiskMetrics Group lists described in previous posts, the value is as much in the Dow Jones name itself as in the opportunity to attract investors through funds tracking the index--- or so Dow Jones might claim.  But while these pools of investors may be smart to stake their claim on responsibly managed stocks, they are nevertheless a relatively small group compared to those who invest based on more mainstream indices.  Time will only tell how much this market grows in comparison to the primary Dow Jones indices.

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