The year 1999 gave the world the euro, The Matrix, and the world’s first ever global sustainability benchmark—the Dow Jones Sustainability Index (DJSI). The product of a landmark collaboration between S&P Dow Jones Indices and SAM1 (now RobecoSAM), the DJSI pioneered sustainable indexing and has shaped corporate sustainability practices ever since.2 To commemorate the 20th anniversary of the DJSI in 2019, we reflect on its origins, its impact on the market, and the possible future of the sustainable investing landscape. Inclusion in the DJSI is seen as a badge of honor by sustainability champions around the world. Perhaps no other benchmark has had as profound an impact on the behavior of companies, as they seek to secure a coveted spot in the world-renowned DJSI World each year. Today, there are over 37,000 sustainable indices available worldwide,3 and with a 60% increase in the number between 2017 and 2018 alone, the industry is rapidly transforming.4 Amid this proliferation of environmental, social, and governance (ESG) benchmarking tools, the DJSI continues to make waves as the evolving global standard for benchmarking corporate sustainability performance, even two decades later.
1700s-1970s: THE ORIGINS OF RESPONSIBLE INVESTING
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The notion of responsible investing is practically as old as investing itself. Records date back to the 18th century, when faith-based groups such as the Quakers and the Methodists provided guidance on “sinful” investments to avoid. To this day, faith-based strategies like Shariah-compliant investing are offered within the broader sustainable investment framework. However, the modern socially responsible investing (SRI) movement, as we know it, took off in the 1960s and 1970s, for example, with the boycott, divestment, and sanctions against South African companies during the era of apartheid.
Similar measures were adopted during the Vietnam War, culminating in the establishment of the first ethical investment vehicle, the Pax World Balanced Fund, in 1971. The mutual fund, which avoided investments in the supply chains of the controversial tactical herbicide Agent Orange, offered a channel for values-driven investors seeking to redirect their investments on the basis of pacifist moral principles. Together, these movements paved the way for a generation of socially conscious investors seeking to affect social and political change, underscoring the ambition of “putting one’s money where one’s mouth is.”
By the 1980s, SRI had become fairly standardized in removing “sin stocks,” such as alcohol, tobacco, weapons, and nuclear energy, from investment portfolios. Fundamentally about values, SRI is driven by the desire to align one’s investments with one’s beliefs. But as modern portfolio theory suggests, excluding stocks from the opportunity set reduces potential returns. While popular with values-driven investors, SRI thus did not gain widespread traction among mainstream investors and was left relegated to those willing to put their beliefs before their returns. However, the idea that responsible companies are not only morally superior, but are also superior in terms of financial performance was slowly starting to surface. In the early 1970s, the New York-based journalist Milton Moskowitz published lists of “responsible” and “irresponsible” companies, tracking their performance against the stock market. In 1973, he wrote in the New York Times, “I do harbor the suspicion that socially insensitive management will eventually make enough mistakes to play havoc with the bottom line.”6 While his thinking underpinned many of the ideas behind corporate social responsibility (CSR), it would remain largely disconnected from the typical investment process until ESG investing later became widespread—in part, due to the launch of the DJSI.