Global Standards and Ethical Stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index

Abstract

The increased scrutiny of investors regarding the non-financial aspects of corporate performance has placed portfolio managers in the position of having to weigh the benefits of ‘holding the market’ against the cost of having positions in companies that are subsequently found to have questionable business practices. The availability of stock indexes based on sustainability screening makes increasingly viable for institutional investors the transition to a portfolio based on a Socially Responsible Investment (SRI) benchmark at relatively low cost. The increasing share of socially responsible investments may play a role in providing incentives towards a continuous upgrading of sustainability standards to the extent that their performance is not systematically inferior to that of the other funds. This article examines whether these incentives have been so far detectable with particular reference to the Dow Jones Sustainability Stoxx Index (DJSSI) that focuses on the European corporations with the highest CSR scores among those included in the Dow Jones Stoxx 600 Index. The aim of the article is twofold. First, we analyse the performance of the DJSSI over the period 2001–2006 compared to that of the Surrogate Complementary Index (SCI), a new benchmark that includes only the components of the DJ Stoxx 600 that do not belong to the ethical index to evaluate more correctly the size of possible divergent performances. Second, we perform an event study on the same data set to analyse whether the stock market evaluation reacts to the inclusion (deletion) in the DJSSI. In both cases, the results suggest that the evaluation of the CSR performance of a firm is a significant criterion for asset allocation activities.

This is a preview of subscription content, access via your institution.

References

  1. Bauer R., K. Koedijk, and R. Otten: 2005, International Evidence on Ethical Mutual Fund Performance and Investment Style. Journal of Banking and Finance, 29, 1751–1767

    Article  Google Scholar 

  2. Caparrelli, F. and A. M. D’Arcangelis: 2003, ‘Acquistare titoli che entrano nel MIB30. Strategia di successo o illusione?’, Bancaria, 6

  3. Derwall L., N. Guenster, R. Bauer, and K. Koedijk: 2005, The Eco-Efficiency Premium Puzzle. Financial Analysts Journal, 61(2), 51–63

    Article  Google Scholar 

  4. Di Bartolomeo D. and L. Kurtz: 1999, Managing Risk Exposure of Socially Screende Portforlios (Northfield Information Service, Boston), http://www.northinfo.com

  5. Fama, E. F. and K. R. French: 1996, ‘Multifactor Explanations of Asset Pricing Anomalies’, The Journal of Finance 51(1), 55–84

    Google Scholar 

  6. Freeman, R. E. (1984). Strategic Management: A Stakeholder Approach (Pitman, Boston)

    Google Scholar 

  7. Garz, H., C. Volk and M. Gilles: 2002, More Gain than Pain (SRI: Sustainability Pays Off, West LB). http://www.sustainability-indexes.com/djsi_pdf/publications/Studies/WestLB_0211_English.pdf

  8. Geczy, C., R. Sambaugh and D. Levin: 2004, ‘Investing in Socially Responsible Mutual Funds’, Wharton School Working Paper, University of Pennsylvania

  9. Harris, L. and E. Gurel: 1986, ‘Price and Volume Effects Associated with Changes in the S&P 500 List: New Evidence for the Esistence of Price Pressure’, Journal of Finance 41, 815–829

    Google Scholar 

  10. Jensen, M. C.: 2001, ‘Value Maximization, Stakeholder Theory, and the Corporate Objective Function’, Journal of Applied Corporate Finance 14(3), 8–21

    Google Scholar 

  11. Kahneman D., and A. Tversky: 1979, Prospect Theory: An Analysis of Decision Under Risk. Econometrica, 47(2), 263–291

    Article  Google Scholar 

  12. Kurtz, L. and D. Di Bartolomeo: 1996, ‘Socially Screened Portfolios. An Attribution Analysis of Relative Performance’, Journal of Investing 5, 35–41

    Google Scholar 

  13. Lamoureux, C. G. and J. W. Wansley: 1987, ‘Market Effects of Changes in the Standard & Poor’s 500 Index’, The Financial Review, 22(1), 53–69

    Google Scholar 

  14. Moskowitz, M.: 1972, ‘Choosing Socially Responsible Stocks’, Business and Society 1, 71–75

  15. Orlitzky, M., F. L. Schmidt and S. L. Rynes: 2003, ‘Corporate Social and Financial Performance: A Meta-Analysis’, Organization Studies 24(1), 403–441

    Google Scholar 

  16. Sauer, D.: 1997, ‘The Impact of Socially-Responsible Screens on Investment Performance: Evidence from␣the Domini 400 Social Index and Domini Equity Fund’, Review of Financial Economics 6, 137–149

    Google Scholar 

  17. Schröder , M.: 2003, ‘Is There a Difference? The Performance Characteristics of SRI Equity Indexes’, ZEW Discussion Paper, No. 05–50

  18. Statman , M.: 2000, ‘Socially Responsible Mutual Funds’, Financial Analyst Journal 56, 30–39

    Google Scholar 

  19. Volk, C.: 2003, ‘Inside SRI. Update “More Gain than Pain” & A Fresh Look at New Index Structures’, October, http://www.sustainability-indexes.com/djsi_pdf/publications/Studies/WestLB_031014_English.pdf

Download references

Acknowledgements

We would like to thank Edoardo Gai from SAM Group for his help to access the data and for his helpful comments. A special thanks to Prof. Terrence Martell and all the participants of the ICCA 2007 International Conference for their useful comments and suggestions.

Author information

Affiliations

Authors

Corresponding author

Correspondence to Costanza Consolandi.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Consolandi, C., Jaiswal-Dale, A., Poggiani, E. et al. Global Standards and Ethical Stock Indexes: The Case of the Dow Jones Sustainability Stoxx Index. J Bus Ethics 87, 185–197 (2009). https://doi.org/10.1007/s10551-008-9793-1

Download citation

Keywords

  • DJSSI – Dow Jones Sustainability Stock Index
  • ethical stock indexes
  • SRI (Socially Responsible Investing)
  • performance of SRI funds