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Indicator Assessment

'Sustainable companies' performance compared to other companies (24.3)

Indicator Assessment
Prod-ID: IND-331-en
Created 14 Mar 2012 Published 13 Apr 2012 Last modified 04 Sep 2015
7 min read

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The European companies included in the DJSI performed steadily better than major European companies included in STOXX 50 during the past decade. This suggests that the financial/stock markets may recognise a premium in investing in sustainable companies, perhaps as a result of increasing use of sustainability criteria or at least sustainability considerations when selecting suitable investments. However, this premium does not appear to be sustained during periods of economic slowdown.

‘Sustainable companies’ stockmarket performance compared to other companies

Note: The graph compares the market return on shares of sustainable companies of the Eurzone included in the Dow Jones Sustainability Index (DJSI) with the market resturn on shares of major Euzone companies (blue chips) as recorded by the STOXX 50 Index

Data source:

The DJSI Europe (sustainable companies) and the STOXX 50 index follow approximately the same general path from 2001 to 2011. Both indexes slowed down during the financial crisis. However, the companies in the DJSI performed relatively better than STOXX companies during the whole decade by keeping a stable advantage in term of total return. The advantage of DJSI companies has been relatively greater during the expansionary phase of 2005-2007 and during the economic recovery following stock market loses during 2007-2009.

This suggests that the financial/stock markets may recognise a premium in investing in sustainable companies, perhaps as a result of increasing use of sustainability criteria or at least sustainability considerations when selecting suitable investments. On the other hand it may suggest that the economic performance of ‘sustainable’ companies is better than average for companies on the stock exchange.

In either case it indicates that more sustainable companies are better able to attract investments than average companies on the stock exchange whether investments are guided by sustainability criteria or only by consideration of returns on investment. However, this only appears to be true during periods of economic optimism.

It should also be noted that companies that are better performing on sustainability criteria, may also be highly innovative companies and their better performance in terms of market returns on their stocks may due to positive attributes other than sustainability or CSR attributes, or a to a combination of heterogeneous positive attributes. In other words there may not be any causal connection between the sustainable activities of a company and its better than average performance on stock exchanges.

Supporting information

Indicator definition

The Dow Jones Sustainability Europe Index (DJSI Europe) comprises the leading companies in terms of sustainability from the Dow Jones Global Total Stock Market Index. It captures the top 20% in terms of sustainability out of the biggest 600 companies inEurope. Components are selected according to a corporate sustainability assessment that identifies the sustainability leaders in each of the 57 sectors. The methodology accounts for general as well as industry-specific sustainability trends and evaluates corporations based on a variety of criteria including climate change strategies, energy consumption, human resources development, knowledge management, stakeholder relations and corporate governance. The STOXX 50 index tracks the stock market performance of biggest companies inEurope(Blue Chips). The indexes reported here are those on total return on stocks. 

Units

Index of daily return on stocks, 1/10/2001 = 100


 

Policy context and targets

Context description

In the 2001 Green Paper on Promoting a European Framework for Corporate Social Responsibility (COM 2001/366/final), the European Commission recognizes that for SRI to grow further, financial markets need to improve their awareness of its potential returns. Therefore, the Commission underlines that European market indices identifying companies with the strongest social and environmental performance will become increasingly necessary as a basis for launching SRI funds and as a performance benchmark for SRI.

In its 2002 Communication on Corporate Social Responsibility (COM 2002/347/final), the European Commission invited trustees of pension schemes and retail investment funds to disclose to what extent they considered social, environmental and ethical issues in their investment decisions. It also expressed itself as being in favour of CSR-monitoring and benchmarking initiatives with regard to pension and investment funds. The European Commission, therefore, called on the EU Multi-Stakeholder Forum on CSR to establish principles on an EU common approach on disclosure of SRI and retail funds practices. These and other initiatives came to a halt with the new Communication on CSR (COM 2006/136/final) which failed even to mention SRI.

The renewed EU Sustainable Development Strategy (Council of the EU, 26 June 2006) addresses socially responsible investment with respect to European development policies. It states that investments made by the European Investment Bank and EU-Africa Partnership for Infrastructure should support sustainable development goals. The EIB, in particular, is asked to ‘assess its lending against the contribution to achieving the Millennium Development Goals and sustainable development’.

In its 2007 Resolution on CSR (2006/2133/INI, 13 March 2007), the European Parliament addresses SRI and possible roles of the financial sector in the following three articles:

  • In Art. 16 the EP underlines that investors are important stakeholders concerning CSR debate at EU level and that ‘there must remain the opportunity for sustained dialogue to achieve agreed goals’;
  • In Art. 27 the European Commission is asked to revise Directive 78/660/EEC (Fourth Directive) on the annual accounts of certain types of companies based on Art. 54.3(g) of the “Treaty on annual accounts of certain types of companies” in consideration of adjoining social and environmental reporting to financial reporting;
  • Art 33 calls the European Commission to consider a ‘statement of interest principles for investment funds’ throughout the EU.

In its Communication ‘A renewed EU strategy 2011-14 for Corporate Social Responsibility(COM 2011/681/final), with regard to investments, the European Commission states its intention to consider a requirement on all investment funds and financial institutions to inform all their clients (citizens, enterprises, public authorities etc.) about any ethical or responsible investment criteria they apply or any standards and codes to which they adhere.

Targets

No quantitative policy targets or objectives have been identified for this indicator.

Related policy documents

No related policy documents have been specified

 

Methodology

Methodology for indicator calculation

The daily indexes based on 30/09/2001 for the DJSI and 31/12/1991 for the STOXX index have been recalculated for the base date 1/10/2011 = 100 in order to enable comparison of performance.

Methodology for gap filling

No gap filling was necessary for producing this indicator from the source data.

Methodology references

No methodology references available.

 

Uncertainties

Methodology uncertainty

No uncertainty has been identified in the methodology used by the EEA to process the source data.

Data sets uncertainty

No uncertainty information has been provided by the publishers of the source data.

Rationale uncertainty

The indicator does not directly answer the question on whether investment funds are increasingly subject to sustainability criteria. It provides only a proxy indicator which may indicate a consequence of increasing criteria – i.e. that companies meeting such criteria (whether or not investment fund managers are applying them) are more likely to attract investments.

Moreover, in some cases, companies that are better performing on sustainability criteria, as those adopted by DJSI to include them in the index, are also highly innovative companies and their better performance in terms of market returns on their stocks may due to positive attributes other than sustainability or CSR attributes, or a to a combination of heterogeneous positive attributes. In other words there may not be any causal connection between the sustainable activities of a company and its better than average performance on stock exchanges.

Data sources

  • No datasets have been specified.

Other info

DPSIR: Driving force
Typology: Descriptive indicator (Type A - What is happening to the environment and to humans?)
Indicator codes
  • SCP 032
EEA Contact Info info@eea.europa.eu

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Geographic coverage

Temporal coverage

Dates

Tags

Filed under:
Filed under: sustainability

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