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Dow Jones Sustainability Indexes (DJSI)Annual Review 20066 September 2006
A cooperation of Dow Jones Indexes, STOXX Ltd. and SAM Group
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Source: Rappaport, Alfred (2005): The Economics of Short-Term Performance Obsession, Financial Analysts Journal, Vol. 61, Number 3, May/June 2005
„The potential payoff from reducing short-term performance obsession
in the investment and corporate communities is substantial.“
Alfred Rappaport
Food for thought ...
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Content
I. Key Facts
II. Research Highlights 2006
III. Dow Jones Sustainability World Index
IV. Dow Jones STOXX Sustainability Index
V. Dow Jones Sustainability North America Index
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SAM – Overview
World‘s only investment group offering asset management, private equity and indexes with an exclusive focus on sustainability.
Global customer base including banks, insurance companies, pension funds, foundations, and private clients.
2.6 billion USD in assets under management. 45% CAGRsince 2002.
Company with over 60 staff and offices in Zurich, Melbourne, Milan, Montreal, San Francisco and Stockholm.
20 analysts combining sustainability and financial expertise. Global expert network.
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SAM – Indexes
Cooperation with Dow Jones Indexes and STOXX for thepublication and licensing of the Dow Jones Sustainability Indexes(DJSI). Launch in 1999.
Broad family of DJSI benchmarks including global, European, Eurozone, North American, and US indexes.
Over 5 billion USD in DJSI-based investment vehicles.
Launch of the Australian SAM Sustainability Index (AuSSI) in 2005.
Launch of further indexes in 2005 and 2006.
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DJSI – Overview
Integrated assessment of economic, environmental and socialcriteria with a strong focus on long-term shareholder value.
Consistent rules-based methodology, primary research (directcontact to companies).
Focus on best-in-class companies. Yearly review and continuousmonitoring of companies.
Assurance of the assessment process by PwC.
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Creates and licenses indexes for use in investment products, calculates 3,000+ indexes in real time.
Provides and services the Dow Jones STOXXSM indexes, Europe's leading regional equity indexes.
Focuses exclusively on sustainability investments, offers indexes, research, asset management and private equity services.
DJSI – Partners
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DJSI – AssetsAssets based on DJSI (in million USD)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
09/99 03/00 09/00 03/01 09/01 03/02 09/02 03/03 09/03 03/04 09/04 03/05 09/05 03/06
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Kepler Fonds (AT)Mandatum Asset Management (FI)MEAG Munich Ergo (DE)Merrill Lynch (UK)Nikko Asset Management (JP)OP Fund Management Company (FI)Raiffeisen (AT)Rabo Bank (UK)SAM Sustainable Asset Management (CH)Sparinvest (DK)SPP (SE)State Street Global Advisors (US)Synchrony Asset Management (CH)Theodoor Gilissen Bankiers (NL)UBS Global Asset Management (Japan) LtdUBS Deutschland AG (DE)Union Investment (DE)Vontobel (CH)WestAM (DE)WestLB (DE)VZ VermögensZentrum (CH)
Aegon (NL)Baloise Insurance (CH)BNL Gestioni (IT)BT Financial Group (AU)Capital Invest (AT)CIC Asset Management (FR)Credit Suisse Asset Management (CH)Credit Agricole Asset Management Japan Ltd.Credit Union Central Alberta (CA)Credit Union Central of Ontario (CA)Danske Invest / BG Invest (DK)Dexia Asset Management (BE)Deutsche Bank (DE)Deutsche Postbank (DE)DWS (DE)DZ Bank (DE)Folksam Sak (SE)Fortis Investment Management (BE)Gestnord (IT)IndexChange (DE)Invesco (DE)ING (BE)
DJSI – Licenseesas of August 31, 2006
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Content
I. Key Facts
II. Research Highlights 2006
III. Dow Jones Sustainability World Index
IV. Dow Jones STOXX Sustainability Index
V. Dow Jones Sustainability North America Index
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DJSI World Universe = 2,500DJSI STOXX Universe = 600DJSI North America Universe = 600Invitations sent = 2,501Companies analysed globally = 1,200- North America: 442 - Europe: 489 - Japan: 144 - Asia / Pacific ex Japan: 102 - Latin America: 14 - South Africa: 9 Companies completing survey = 527Companies analysed based on public information only = 673
DJSI – Assessment Universe 2006Number of invited and assessed companies
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The trend towards industry-specific sustainability management continues. Companies are getting increasingly educated about the specific sustainability risks and opportunities in their sector and continuously move beyond general aspects. Examples for this include waste-to-energy production of utility companies, digital inclusion in thecommunication technology industry, and closed-cycle bleaching in the paper industry.
Competition increases for sustainability leadership. As sustainability gains recognition, an increasing number of companies are competing for sector sustainability leadership and differences between leadingcompanies in most sectors are getting smaller.
Huge discrepancies exist between companies concerning their operational risk management. Only few companies report that they have established systems to quantify and visualize operational risks with tools such as risk maps, stress testing, sensitivity analysis, etc.
Leaders quantify the value of their brands. Companies care about their brands and invest heavily into brand management, but few report that they are actually able to quantify the values of their brands and the returns on their brand investments.
DJSI – Key Insights 2006 (I)
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Climate change continues to attract increased attention. More companies recognize that climate change will have a major impact on their future operations and product offering. Leading energy firms include a climate change impact assessment in their M&A due diligence. The top financial institutions leverage their climate change know-how gained for internal assessments to market new products and services that gobeyond mere carbon emission trading (e.g. risk management systems, environmental impact assessments of potential investments, etc.)
More global firms tailor their product offerings to the specific needs of developing countries. Mobile communication technology providers offer low budget mobile phones or install phone booths in under-developed regions. Consumer goods manufacturers adjust their global offering in terms of product packaging, product sizing, pricing and contents (e.g. adding iodine to salt).
Overall, sustainability performance continues to advance across all sectors. At the same time, substantial room for progress in sustainability remains on the corporate agenda.
DJSI – Key Insights 2006 (II)
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%
Total IndustryCriteria
GeneralCriteria
SocialDimension
EnvironmentalDimension
EconomicDimension
50%33%
20%
100%
50%
33%
33%
DJSI – Assessment Criteria (I)Overview
Actual weightings for the economic, environmental and social dimension may differ between industry groups to reflect the sector’s specific exposure to certain sustainability trends. The graph above is illustrative of the approximate weightings.
Weight of industry-specific
criteria increased from 40% to 50%
in 2006
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Depends on IndustryIndustry Specific Criteria
3.5Corporate Citizenship / Philanthropy3.0Social Reporting
5.0Labor Practice Indicators5.5Talent Attraction & Retention
5.5Codes of Conduct/Compliance/Anti-Corruption & Bribery
5.5Human Capital DevelopmentSocial
Depends on IndustryIndustry Specific Criteria3.0Environmental Reporting7.0Environmental Performance (Eco-Efficiency)
EnvironmentalDepends on IndustryIndustry Specific Criteria
6.0Risk & Crisis Management6.0Corporate GovernanceWeighting (in%)Economic
DJSI – Assessment Criteria (II)Criteria & Weightings
A complete survey for the entire general part of SAM’s assessment is available at www.sustainability-indexes.com (-> Assessment -> Information Sources).
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Criteria added to relevant industry-specific parts to evaluate the development of a company’s revenue share from emerging markets and assess its strategy to further grow its presence in these regions.
Strategy for emerging markets
Criteria added to relevant industry-specific parts to evaluate the systems and tools companies put in place for strategically managing their brand(s) and to assess their returns on brand investments.
Brand Management
Questions added to relevant industry-specific parts to assess whether companies continuously monitor their consolidated balance between CO2 emissions and CO2 emission allowances, and whether they incorporate GHG emission parameters in their evaluations of new projects.
Climate Strategy
Expanded focus on reporting of breaches of codes of conducts.
Codes of Conduct/Compliance/ Corruption & Bribery
Revised criteria in general part for further insights into the scope of risk management systems, and the use of various tools such as sensitivity analysis and stress testing of risk models.
Risk & Crisis Management
Corporate Governance
Criteria
Criteria added to general part to cover board effectiveness and entrenchment provisions.
Key changes compared to 2005
DJSI – Assessment Criteria (III)Examples of criteria changes compared to 2005
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DJSI – Focus (I)Examples of Criteria Results
Average sustainability scores for selected criteria DJSI members and non-members
0 10 20 30 40 50 60 70 80 90 100
Corporate Governance
Codes of Conduct / Compliance /Anti-Corruption & Bribery
Risk & Crisis Management
Eco-Efficiency
Labor Practice Indicators
Human Capital Development
Sustainability and Project Finance(Banks)
Protection of Biodiversity (Oil &Gas)
Healthy Living (Food)
Access to Drugs (Drugs)
DJSI Members Non-Members
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Score 2006 and deviation from average score 2006 by industry
Average all sectors: 69.44Best score: 96.25
+ 4.95
+ 2.29
+ 1.73
+0.72
+ 0.72
- 0.05
- 0.27
- 0.47
- 1.61
- 1.9
65 66 67 68 69 70 71 72 73 74 75 76
Basic Materials
Financials
Consumer Goods
Industrials
Health Care
Consumer Services
Telecommunications
Technology
Utilities
Oil & Gas
DJSI – Focus (II)Corporate Governance by Industry
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Score 2006 and deviation from average score 2006 by industry
Average all sectors: 34.62Best score: 100
- 13.73
- -13.63- -7.52
- 0.77
+ 3.78
+ 7.12
+ 7.25
+ 13.20
+ 14.84
+ 27.72
18 21 24 27 30 33 36 39 42 45 48 51 54 57 60 63 66
Financials
Consumer Services
Health Care
Technology
Industrials
Telecommunications
Oil & Gas
Utilities
Consumer Goods
Basic Materials
DJSI – Focus (III)Eco-Efficiency Improvements by Industry
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Average all sectors: 44.97Best score: 100
+ 10.15
+ 8.49
+ 6.52
+5.75
+ 3.86
- 4.28
- 4.39
- 5.10
- 7.70
- 8.32
35 37 39 41 43 45 47 49 51 53 55 57
Consumer Services
Health Care
Technology
Consumer Goods
Industrials
Oil & Gas
Telecommunications
Basic Materials
Financials
Utilities
Score 2006 and deviation from average score 2006 by industry
DJSI – Focus (IV)Risk & Crisis Management by Industry
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Average all sectors: 31.34Best score: 100
- 8.97
- 8.69- 0.57
- 0.54
- 0.05
+ 2.06
+ 2.76
+ 6.84
+ 7.19
+ 11.81
20 23 26 29 32 35 38 41 44 47
Health Care
Consumer Services
Financials
Oil & Gas
Technology
Industrials
Consumer Goods
Telecommunications
Basic Materials
Utilities
Source: SAM Research
Score 2006 and deviation from average score 2006 by industry
DJSI – Focus (V)Human Capital Development by Industry
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Average all sectors: 62.09Best score: 100
+ 7.64
+ 6.39
+ 4.05
+ 4.04
+ 3.05
+ 0.88
+ 0.83
- 2.45- 3.86
- 4.20
55 58 61 64 67 70 73
Consumer Services
Financials
Health Care
Technology
Industrials
Consumer Goods
Oil & Gas
Basic Materials
Telecommunications
Utilities
DJSI – Focus (VI)Labor Practice Indicators by Industry
Score 2006 and deviation from average score 2006 by industry
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Content
I. Key Facts
II. Research Highlights 2006
III. Dow Jones Sustainability World Index
IV. Dow Jones STOXX Sustainability Index
V. Dow Jones Sustainability North America Index
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Dow Jones Global Index2,500 largest companies
58 DJSI sectors
Component SelectionTop 10% of companies in terms of sustainability
in each DJSI sector
20% target market cap coveragein each supersector
DJSI World318 Components58 DJSI sectors
46 Adds (8.5% of mcap)36 Deletes (5.0% of mcap)
DJSI World – Selection 06/07
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DJSI World(318 Components)
DJSI World ex Alcohol(309 Components)
DJSI World ex Tobacco(316 Components)
DJSI World ex Gambling(305 Components)
DJSI World ex Armaments & Firearms(313 Components)
DJSI World ex Alcohol, Tobacco, Gambling, Armaments & Firearms(289 Components)
DJSI World – Index Range
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DJSI World – Performance5 Years, 08/01 - 08/06, EUR, Total Return Index
+7.8%
+3.0%
50
60
70
80
90
100
110
120
08/01 02/02 08/02 02/03 08/03 02/04 08/04 02/05 08/05 02/06 08/06
DJSI World MSCI World
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BMWAutomobiles & Parts
Westpac Banking Corp.Banks
Norsk HydroBasic Resources
DSMChemicals
HolcimConstruction & Materials
Investa Property GroupFinancial Services
NovartisHealthcare
UnileverFood & Beverage
3MIndustrial Goods & Serv.
DJSI World – Global Sector Leaders
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AllianzInsurance
ITVMedia
StatoilOil & Gas
Procter & GamblePersonal & Household
KeskoRetail
IntelTechnology
BT GroupTelecommunications
SodexhoTravel & Leisure
Veolia EnvironnmentUtilities
DJSI World – Global Sector Leaderscont‘d
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Content
I. Key Facts
II. Research Highlights 2006
III. Dow Jones Sustainability World Index
IV. Dow Jones STOXX Sustainability Index
V. Dow Jones Sustainability North America Index
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DJSI STOXX – Selection 06/07
Dow Jones STOXX® 600600 Companies
50 DJSI sector clusters
Component SelectionTop 20% of companiesin terms of sustainability
in each DJSI sector cluster
45% target market cap coveragein each supersector
DJSI STOXX162 Components
50 DJSI sector clusters12 countries
26 Adds (8.2% of mcap)16 Deletes (5.7% of mcap)
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DJSI STOXX(162 Components)
DJSI STOXX ex Alcohol, Tobacco, Gambling, Armaments & Firearms(147 Components)
DJSI STOXX 40 (40 Components)
DJSI EURO STOXX(77 Components)
DJSI EURO STOXX ex Alcohol, Tobacco, Gambling, Armaments & Firearms(70 Components)
DJSI EURO STOXX 40(40 Components)
DJSI STOXX – Index Range
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DJSI STOXX162 Components
(Europe‘s sustainability leaders)
Component SelectionLargest 40 componentsout of the DJSI STOXX
(Maximum 5 per super sector)
DJSI STOXX 4040 Components
weighted bysustainability score
DJSI STOXX 40 – Selection 06/07
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DJSI EURO STOXX 40 – Selection 06/07
DJSI STOXX162 Components
(Europe‘s sustainability leaders)
Component SelectionLargest 40 Eurozone components
out of the DJSI STOXX (Maximum 5 per super sector)
DJSI EURO STOXX 4040 Components
weighted bysustainability score
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* The 40 components of the DJSI STOXX 40 and DJSI EURO STOXX 40 areweighted by their normalized sustainability score, i.e. the result of the companyin SAM‘s annual assessment of economic, environmental and social criteria.
Market Cap (in million EUR)
Sustainability Score*
Weighting
Company 1 10'000 100 100/3000 = 3.3%Company 2 60'000 80 80/3000 = 2.7%Company 3 30'000 60 60/3000 = 2.0%... ... ... ...... ... ... ...... ... ... ...... ... ... ...... ... ... ...... ... ... ...Company 39 50'000 50 50/3000 = 1.7%Company 40 90'000 40 40/3000 = 1.3%Total 3000
DJSI STOXX 40 / DJSI EURO STOXX 40 –Weighting
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DJSI STOXX 40 – PerformanceSince launch (01/06) - 08/06, EUR, Total Return Index
+5.2%+4.7%
90
92
94
96
98
100
102
104
106
108
110
01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06
DJSI STOXX 40
DJ STOXX 50
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DJSI EURO STOXX 40 – PerformanceSince launch (01/06) - 08/06, EUR, Total Return Index
+7.6%
+5.4%
90
92
94
96
98
100
102
104
106
108
110
01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06
DJSI EURO STOXX 40
DJ EURO STOXX 50
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Content
I. Key Facts
II. Research Highlights 2006
III. Dow Jones Sustainability World Index
IV. Dow Jones STOXX Sustainability Index
V. Dow Jones Sustainability North America Index
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Dow Jones Global Index600 largest companies
from North America47 DJSI sector clusters
Component SelectionTop 20% of companies in terms of sustainability
in each DJSI sector cluster
DJSI North America112 Components
47 DJSI sector clusters
17 Adds (10.6% of mcap)13 Deletes (4.2% of mcap)
DJSI North America – Selection
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DJSI North America(112 Components)
DJSI North America ex Alcohol, Tobacco, Gambling, Armaments & Firearms(106 Components)
DJSI United States(92 Components)
DJSI United States ex Alcohol, Tobacco, Gambling, Armaments & Firearms(86 Components)
DJSI North America – Index Range
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DJSI North America – PerformanceSince launch (09/05) - 08/06, USD, Total Return Index
+8.7%+9.2%
80.00
85.00
90.00
95.00
100.00
105.00
110.00
115.00
120.00
09/05 10/05 11/05 12/05 01/06 02/06 03/06 04/06 05/06 06/06 07/06 08/06
DJSI NA S&P 500
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Contact:SAM IndexesSeefeldstrasse 2158008 ZurichSwitzerlandPhone: +41 44 395 2828Fax: +41 44 395 2850info@sam-group.comwww.sam-group.comwww.sustainability-indexes.com