Dow Jones STOXX Sustainability Index

What Is the Dow Jones STOXX Sustainability Index?

The Dow Jones STOXX Sustainability Index was a stock index, first published in 1999, which focused on European companies that score highly on environmental, social, and governance (ESG) ratings. In 2010, Dow Jones terminated its collaboration with STOXX, while continuing to offer ESG-oriented stock indexes under different names.

Today, indexes such as the Dow Jones STOXX Sustainability Index have steadily risen in popularity throughout the world, as investors increasingly look to incorporate environmental factors into the decision-making criteria.

Understanding the Dow Jones STOXX Sustainability Index

The Dow Jones STOXX Sustainability Index resulted from a collaboration between Dow Jones & Company and two Swiss-based firms: STOXX and RobecoSAM. Its purpose was to capture European companies on the leading edge of environmental sustainability practices.

To accomplish this, the administrators assigned a sustainability score to each company based on a comprehensive rating system that examined company actions in regard to corporate governance, environmental impacts, and ongoing research and development (R&D) on environmental issues.

These companies were drawn from an investment universe equal to roughly 90% of the aggregate market capitalization of European-based companies. Of these, the selected invested represented roughly the top 20% of companies, as determined by their sustainability scores.

In this manner, the Dow Jones STOXX Sustainability Index provided a convenient reference point for investors interested in improving the environmental standards of their portfolio, whether by selecting individual stocks from the index, or by constructing investment products such as exchange traded funds (ETFs), which use the index as their benchmark.

In 2010, Dow Jones & Company terminated its partnership with STOXX, while continuing to collaborate with RobecoSAM. Today, there are many indices available that are marketed under the general umbrella of the Dow Jones Sustainability Index family. These include various region-specific indexes, for areas such as Korea, Chila, North America, and the Asia-Pacific region.

Real-World Example of the Dow Jones STOXX Sustainability Index

The Dow Jones Sustainability indexes are updated on an annual basis, in September of each year. To do so, RobecoSAM begins by inviting roughly 3,500 publicly traded companies to submit information which is then used to grade those companies on a variety of ESG-based considerations.

Of these, only about 10% of the respondents are selected for inclusion in the indexes, based on their performance in these areas — although the exact ratio differs depending on the region and index in question.

In the North American Dow Jones Sustainability Index, for example, roughly 600 companies are included, representing about 20% of the investment universe. As of December 2020, this index’s largest holdings consisted of some of the United States’ largest and most well-known firms, including Microsoft (MSFT), Visa (V), and Procter & Gamble (PG) among others.