Getting the measure of SRI investments
The long-term performance of socially responsible investment (SRI) makes it attractive for investors, and corporate sustainability is now an investable concept. To assess companies’ approach to SRI issues, several indexes have been launched.
Last year in the UK, insurer NPI set up an ethically screened social index to measure the medium and long-term performance of its socially responsible investments against more inclusive indexes. The NPI Social Index is a market capitalisation-weighted common stock index, comprising the 150 UK companies and four investment trusts from the FTSE All Share and FTSE Fledging Indexes that have been assessed as being most effective at managing their environmental and social impact.
This index aims to provide SRI managers with a benchmark against which to gauge portfolio performance, particularly of the institutional investment sector, and also a benchmark that is representative of the social investment universe with which to measure performance against other indices, such as the FTSE All Share Index.
NPI Asset Management launched its first SRI fund in 1991, supported by a proprietary database of almost 1,000 UK and overseas companies. The assessments of UK companies contained in the database provide the basis for the construction of the NPI Social Index, which is priced daily by FTSE International.
Recently, Dow Jones Indexes and SAM Sustainability Group launched a family of comprehensive stock indexes, the Dow Jones Sustainability Group Indexes – the first global indexes assessing the performance of sustainability-driven companies worldwide.
The DJSGI family consists of more than 200 companies representing the top 10% of the leading sustainability companies in 68 groups in the 22 countries covered.
The assessment methodology of the index consists of a multi-factor analysis including ecological, social and economic criteria that are equally weighted. The index family includes a global, as well as a regional, index that assesses companies in Europe, North America and Asia-Pacific, and a US country index.
Companies will be reviewed continuously to determine possible reclassification. The DJSGI will have an annual review with the component changes implemented on the second Friday in July and effective on the next trading day.
During recent weeks the sustainable indexes outperformed the standard Dow Jones Index, with minimal increases in volatility. Paula Garrido