What is the Dow Jones Sustainability Index?

"We have once again received significant recognition for our leadership in sustainability, positioning us among the top ranks in three categories of the Dow Jones Sustainability Index: Emerging Markets, Pacific Alliance Integrated Market (MILA) and Chile.” This text was taken from a post by Enel Chile in its LinkedIn account in December 2022. At first glance, this is good news, and it is easy to understand that the company has been compared to others and performed well.

But what exactly does this achievement mean? What is the Dow Jones Sustainability Index (DJSI)? And what is the importance of being ranked among the top spots? Let us explain.

Just as in the hotel industry, stars are a simple way to understand the quality of services offered and make it easier for us to select one that suits our needs and budget, in the corporate world, various indexes, including the Dow Jones, also award "stars" similar to those of hotels, but for large, publicly-traded companies. This index analyzes everything the company has done across three areas or "dimensions": environmental, social, and corporate and economic governance. Therefore, the better the company's performance in each of these areas, the more "stars" it will earn, and it will be ranked among the companies with the highest scores.

Since there is a vast number of companies, and it is not feasible to analyze them all under the same criteria, this index categorizes participating companies in order to evaluate them separately based on their specific industry. For example, a large food production company cannot be compared to one in the electrical industry because the risks and opportunities are very different, and what is relevant for one may not be so for the other.

This is how companies in the same industry are evaluated and compared to their peers, both globally and by geographical area, to identify those that demonstrate the best practices, which are included in this family of indexes with a global, regional, or country-specific benchmark.

Therefore, we can understand that in 2022, Enel Chile achieved very favorable results when compared to other companies in the Utilities sector located in "Emerging Markets," other companies from Mexico, Colombia, Peru, and Chile that make up the Pacific Alliance Integrated Market (MILA), and other companies with similar characteristics in Chile.

The companies invited to participate must complete a questionnaire with 30 evaluation criteria and provide evidence of their actions in each "dimension." This information must also be publicly available and easily accessible primarily through sustainability reports, annual reports, and corporate websites.

But how does a company benefit from participating in this index, and why should it be interested in obtaining a high score?

Montserrat Palomar, Head of Sustainability & Community Relations Enel Chile, explains that there are several benefits for well-evaluated companies. "For example, it is a reliable indicator for a number of stakeholders to ensure the solidity of a company and its performance compared to its peers regarding variables of paramount importance."

Also, good results in this evaluation allow companies to attract and retain investors, map their top strengths, and identify areas of improvement. It also backs the company reputation and forces companies to pay greater attention to the accuracy of the data they are publishing.

“In the case of Dow Jones, the analysis is exhaustive and serves as a guide for continuous improvement for companies being evaluated by a completely impartial third party.”

– comments Paulina Musalem, Head of Sustainability Plan & Stakeholder Engagement, Enel Chile

Rewarding transparency

Additionally, indexes help companies anticipate trends; for instance, the DJSI started requesting metrics and information on climate change performance long before it became a regulatory requirement to provide such data. It also makes it possible to identify opportunities and reduce risks. In other words, if a low score is received in a certain area, the company can analyze why and how improvements can be implemented before the situation turns critical.

“It requires us to be more transparent because the high level of demand drives us to publish more information about our performance. It is very important to be transparent because by making our results available to everyone, access to this information becomes democratized, eliminating the privilege associated with it”

– adds Paulina.

The evaluation to determine whether or not a company will be included in the Dow Jones Sustainability Index is conducted by S&P Global, an international organization with sustainability specialists who assess companies from all over the world. To ensure the reliability of the ranking and avoid practices that could corrupt its results, external consulting firms audit the process and provide assurance for a fair, honest, and trustworthy competition.

Participation and good results in these types of benchmarks and indexes have become an opportunity for different companies to evolve towards increasingly transparent processes, strengthening their control methods, publishing verifiable information available to all their stakeholders, and driving continuous improvement to create value for all.