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July 2013

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ESG Investing Goes Mainstream? The new DJSI Diversified Family

Written by , Posted in Sustainable Investment

Launch of DJSI Diversified Family

Article by Steffen Rufenach and Ellen Chiu

I’ve seen a few different numbers on the market share of ESG investments. Some estimates place the number at 7%, max. Other more ESG-related sources put the figure at 22%. And in a conversation with an investor relations representative from a EURO STOXX 50 company, I was told that ESG doesn’t factor in at all for the investors of their company.

These differences certainly depend on the way ESG investments are measured. For example, am I automatically an ESG investor if I exclude the arms industry from my portfolio and if I consider the retention rate and gender ratio of a company?

Whatever the market share, there are clear indicators that ESG investments are becoming increasingly attractive for mainstream investors. The latest sign is the launch of the DJSI Diversified Family by RobecoSAM Indices and S&P Dow Jones Indices.

RobecoSAM is clearly targeting mainstream investors with this new index family, calling it a “practical mainstream option.” The index is designed for investors who measure their success against a standard benchmark, but wish to tilt their portfolios toward sustainable companies without taking on additional active country, size or sector risks, relative to the benchmark.

The DJSI Diversified Family follows the same construction approach used in standard benchmark index families, and is based on the same research – the RobecoSAM questionnaire. However, it replicates the regional and sector allocation of the S&P Global LargeMidCap Index, while taking sustainability performance into account. This means that RobecoSAM makes a trade-off – to match the regional and sector allocation of the index with the S&P Global LargeMidCap it has to include companies which didn’t make it into the standard DJSI. For example, more U.S. companies are included although they might perform weaker than European peers. So, Europe’s top ESG performers may not profit from any new investments the index could trigger.

As a result, there is a clear downside – overall ESG performance is about 20% lower compared to the standard DJSI. The jury’s still out on whether there’ll be an increased uptake in ESG investments overall in the current market volatility. I think the new DJSI Diversified is very likely to enhance investments in good ESG performers and more investors will be interested as this new index becomes more aligned with benchmarking and the investment rules of mainstream investors.

Here is a link to the webinar RobecoSAM hosted to introduce the index family (registration is necessary for access).

Overall, the DJSI Diversified index has a 20% lower ESG performance than the DJSI classic

Overall, the DJSI Diversified index has a 20% lower ESG performance than the DJSI classic