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11

Apr

Credibility with the Dow Jones Sustainability Index

Author: Rene Garcia

DowJones-Sustainability-Indexes

Sustainability is not always an easy feat to achieve or publicize, especially on a consistent basis and over an extended period of time. An organization can never know when a supply chain disruption will happen, what the effects are, and how the disruption was caused. It takes continued visibility, strict attention, and a lot of research to ensure that vendors, suppliers, and partners will contribute to minimizing the supply chain risk profile. Supply Chain Management software (SCM) can make vetting supply chain partners much easier, but even after achieving sustainability, how can the public be made aware beyond self-promotion through marketing and events?

Enter the Dow Jones Sustainability Indices. Similar to how the Dow Jones Industrial Average (DJIA) acts as a barometer of the economy based on the health of the companies on the index, the Dow Jones Sustainability Indices (DJSI) can give an idea of the sustainability practices of the companies included on the list. Because of how exclusive the index is, simply being included means the organization is both large enough to be significant and performs with sustainability as a goal. Several indices make up the DJSI, which includes one main global index and various indices representing regions, like Europe, North America, and Asia Pacific. There are also industry-specific indexes.

When deciding what companies are indexed, the DJSI assesses organizations based on long-term economic, social, and environmental asset management plans. The criteria changes from year to year, and companies must continually improve their sustainability practices to remain on the index. The DJSI is also updated every year, with listed companies being monitored throughout the year.

The Dow Jones Sustainability Index as a Credential

Since sustainability is not a legal requirement in many countries, including the United States, there is typically nothing outside of self-promotion to point at that proves an organization is practicing sustainability. However, if an organization could get indexed by the DJSI, then it could have the credential of being monitored by an impartial third-party with an expertise in sustainability. But before a company makes the DJSI a goal, there are a few realities to consider.

  1. The DJSI has come under some criticism for how it collects its data on the indexed companies. Apparently, the sustainability data is self-reported, so the accuracy of the data is difficult to confirm. Furthermore, if companies are self-reporting, then how is that any different to self-promoting?
  2. The DJSI indexes the 2,500 biggest companies on the Dow Jones Global Total Stock Market Index. So only very large organizations will be considered, and smaller companies will never make the list no matter how great their sustainability practices are.
  3. Having a credential for sustainability exposes an organization to charges of hypocrisy if and when a serious supply chain disruption occurs. As such, some companies won’t publicize their status as being listed on the DJSI. Researchers W. Chad Carlos and Ben William Lewis call this phenomenon “strategic silence”.

Ultimately, being part of the Dow Jones Sustainability Indices has more benefits than drawbacks. But considering the steep criteria for inclusion, if a company gets listed, then it’s probably already doing a lot of things right. For everyone else who needs to evaluate the sustainability performance of their supply chain, solution specialists like Avetta can help.

Avetta’s Sustainability Evaluation helps organizations understand what practices suppliers have in place and if they are well aligned with their own. Evaluations are configurable for all aspects of sustainability including corporate social responsibility, anti-bribery & corruption, labor & employment, environment, and occupational health & safety.

For more information contact Avetta at +1 (949) 936-4500, or info@avetta.com.

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