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Sustainability Indexes

Companies are increasingly recognizing the benefits of strong corporate citizenship. As investors have become more attuned to the necessity of sustainable business practices there has been a growing demand for indexes and rankings that highlight global firms with strong sustainability records. In particular, three indexes provide an interesting look at how corporate responsibility is quantified and what non-financial characteristics are important in firms.

Corporate Knights is a Toronto-based media and investment advisory company that works with Solactive, a German index provider, to produce an annual list of the most socially responsible companies in each sector of the global economy. Termed the Global 100, the list scores companies on a series of indicators based on how they rank against their global industry peers. Indicators range from energy and water productivity to tax structure and employee safety and are specific to a company’s industry. To qualify for the list companies must be transparent, disclosing their current business practices to the public. The end result is a comprehensive list that details the top performing companies in each industry. Most recently Westpac Banking Corporation of Australia topped the list. They were the first Australian Bank to join the Australian Government’s Greenhouse Challenge Plus and were the first bank in Australia to create a matching donor program for their employees.

The Dow Jones Sustainability Indices is based on a similar belief in corporate responsibility. As factors such as resource scarcity and demographic shifts become more important in the business community, businesses that are operated sustainably will increasingly be able to capitalize on their value. A partnership with RobecoSAM has led to the creation of the Corporate Sustainability Assessment. This assessment is based on a questionnaire sent to the world’s 2,500 largest companies. It is looking for a company’s awareness of and the steps it has taken to address various economic, environmental, and social concerns. Social concerns include standards for suppliers, corporate citizenship and philanthropy, and labor practices. By addressing sustainability issues a company is seen as insuring its long-term vitality.

The last index series is compiled by the FTSE Group, a subsidiary of the London Stock Exchange. Termed the FTSE4Good Index Series it evaluates companies on a variety of sustainability issues. Strong Corporate Social Responsibility (CSR) practices are seen as a means of mitigating risk and an indication of sound management. The FTSE Group looks into a company’s environmental sustainability and supply chain labor standards as well as other areas of interest. This analysis helps determine the most sustainable businesses.

Although these indexes are primarily a means of evaluating investments they provide essential insights into the area of corporate responsibility. Each is further evidence that supporting communities rather than harming them is a vital business practice. They are further evidence of the evolving landscape of CSR. It is now increasingly seen as a means of reinforcing a brand, building loyalty, and ensuring that one’s business is appropriately situated to address societal challenges.