| KEY FACTS
SUSTAINABILITY ASSESSMENT
SELECTION AND EXCLUSIONS
KEY FACTS
What is corporate sustainability?
Corporate sustainability is a business approach to create
long-term shareholder value. Sustainability leaders embrace
opportunities and manage risks which derive from economic,
environmental and social developments. As the importance of
these trends increases, a growing number of investors integrate
economic, environmental and social criteria into their stock
analysis and use sustainability as a proxy indicator for innovative
and future-oriented management.
What is the purpose of a sustainability index?
Sustainability indexes provide objective benchmarks for the
financial products that are linked to economic, environmental
and social criteria. They offer both, a performance baseline
as well as an investment universe, for the increasing number
of mutual funds, certificates, separate accounts and other
investment vehicles which are based on the concept of sustainability.
When was the AuSSI launched?
The AuSSI was launched on February 17, 2005.
How are the AuSSI components selected?
The AuSSI follows a best-in-class approach comprising the
sustainability leaders in the investable universe from each
industry. Categorized into 58 SAM industry groups, companies
are assessed in line with general and industry-specific criteria.
They are compared against their peers and ranked accordingly
within 21 AuSSI clusters. The leading companies from each
cluster are included in the AuSSI.
The investable stocks universe of the AuSSI consists of the
Australian companies listed in the Dow Jones Global Index
that fulfill additional liquidity requirements and that are
not Limited Investment Companies. Out of the remaining universe,
the top 40 percent of the companies in terms of sustainability
is selected as AuSSI members. A detailed description of this
process, is available in the AuSSI Guidebook.
The AuSSI is reviewed on an annual basis. Once the components
are selected, they are continuously monitored throughout the
year to verify the involvement in and management of critical
areas.
What is the benefit for a company to be included
in the AuSSI?
Inclusion in the index leads to several, tangible and intangible
benefits:
Public recognition of being an industry leader in strategic
areas covering economic, environmental and social dimensions.
Recognition by important stakeholders such as legislators,
customers and employees (e.g. leading to a better customer
and employee loyalty).
Highly visible results, both internal and external to the
company, as all components are publicly announced by the index
publisher and companies are entitled to use the offical AuSSI
label.
SUSTAINABILITY
ASSESSMENT
How are companies assessed in terms of sustainability?
The AuSSI is based on a thorough sustainability assessment
that covers economic, environmental and social criteria. The
research starts by defining sustainability trends which SAM
sees as having a growing impact on the long-term success of
companies. Based on this understanding of future economic,
environmental and social developments, the analysts develop
a set of general and industry-specific criteria to assess
companies. The analyzed companies are assigned a sustainability
score and are ranked accordingly within their industry group.
What are examples of sustainability trends that you
take into account?
SAM's sustainability analysts identify specific challenges
for the 58 SAM industry groups and subsequently select criteria
that enable them to identify the leading companies in terms
of economic, environmental and social issues. Examples of
sustainability trends are:
Climate Change - Escalating demand for energy
propels economic development, but threatens the Earth's climate.
Hurricanes in 2005 have been another case in point for the
growing challenges posed by extreme weather conditions.
Water - Freshwater is growing scarce amidst
competing human needs. Water scarcity is also pressurizing
many industries who rely on access to water for their production
processes.
Food - Intensive agricultural systems lead
to increasing pressure on land, soil and biodiversity. The
agriculture and food manufacturing industry are challenged
to find more sustainable production methods which guarantee
long-term food supply without undermining their natural capital.
Accountability - Recent corporate scandals
have strengthened civil society's demand for greater accountability
and transparency from business.
Health - Life expectancy is rising, but preventable
diseases limit development in certain areas. Health challenges
of preventable disease coupled with the HIV/AIDS epidemic
pose not only challenges for pharmaceutical companies regarding
access to drugs, but also to industries that rely on a healthy
workforce and society for their productivity and success.
Based on which criteria do you assess companies?
Companies are assessed with regard to general as well as industry-specific
sustainability criteria based on sustainability trends. The
criteria cover economic, environmental and social issues with
a clear focus on long-term shareholder value creation. Examples
include criteria on corporate governance, knowledge management,
environmental performance, human rights policies etc. In total,
the assessment comprises around 50 different criteria in each
industry. A full list of all the general criteria including
their weightings is available on the AuSSI homepage. In addition,
the entire general section of the questionnaire as well as
the industry specific approach for the pharmaceutical sector
can be downloaded.
Do you consider financial performance in assessing
companies?
No. Our focus lies on forward looking sustainability criteria.
We believe that an integrative analysis of long-term economic,
environmental and social analysis provides a solid platform
to identify well-managed companies – companies, that
are less likely to fall into financial distress and better
positioned to weather adverse conditions.
How do the corporate governance scandals over recent
years relate to sustainability?
Corporate governance has always been an integral part of our
assessment. Governance of corporations must be controlled
or else abuses of power occur. Such abuses may involve corruption,
insider trading, inequality in human rights and others. Should
this type of behavior be allowed to become embedded in a company's
culture then this will undermine the capability of the company
to create value over the long-term and hence threaten its
sustainability. Post the technology boom, capitalism is becoming
more civil and less arrogant, which will ultimately add to
its sustainability.
Which weightings do you apply to the different criteria?
The general criteria account for 60% of our analysis. The
remaining 40% are allocated to industry-specific criteria.
Looking at the assessment from a different angle, the criteria
can also be split up into the three sustainability dimensions:
Economic, environmental and social criteria each account for
a third of the assessment. The analyst has the possibility
to alter the weightings slightly to reflect industry characteristics
- for example, in the media industry economic and social considerations
are of more significance than environmental considerations.
Is the methodology continuously updated to reflect
the state-of-the-art of corporate sustainability?
Yes, the methodology is updated on an annual basis. We continuously
engage with a variety of stakeholders to ensure that the criteria
reflect leadership and best practice in corporate sustainability.
Annually, each of our sustainability analysts reviews global
trends and what challenges these pose for each industry, thereby
determining criteria to make the distinction between leaders
and laggards. As our methodology is used as a roadmap for
corporate sustainability by many businesses and stakeholders
worldwide, we recognize our responsibility in ensuring that
our methodology is constantly pushing and setting the next
level of performance in corporate sustainability.
What information sources do you use?
Information is taken from four sources: The industry-specific
questionnaire, company documents, a detailed media and stakeholder
analysis, as well as direct company interaction.
How many analysts does SAM have? What is their background?
How much time does SAM take to analyze a company?
SAM has a total of 20 analysts which are organized on a sector
basis, thereby allowing them to understand trends and leadership
behavior specific to their industries. 10 of these analysts
exclusively cover large and mid cap companies and thus the
stocks for the AuSSI. They apply a highly systematic assessment
process to all companies they cover, allowing them to assess
a large number of companies without losing their objectivity.
The sustainability analysts come from a variety of backgrounds,
although the pre-requisite for being an analyst is an in-depth
knowledge of finance as well as sustainability.
Is the AuSSI verified by independent third parties?
Yes, the annual selection process and methodology are regularly
verified by independent auditors (PricewaterhouseCoopers since
1999). The most recent verification letter from PricewaterhouseCoopers
is available on our webpage.
How transparent are you with regard to your methodology
and criteria?
Transparency is essential to our business. In view of the
different approaches to and views on sustainability investing,
it is of paramount importance to offer our stakeholders detailed
insights into our methodology and criteria. By providing this
information, our clients, the assessed companies, non-governmental
organizations and other interested parties can evaluate and
challenge our approach. This is not only important for their
own decision-making, but also results in valuable feedback
to us.
On the AuSSI website you will find our questionnaire, including
the possibility of interacting with a version of the online
questionnaire, our guidebook for the AuSSI indicating how
the rules and detailed methodology are applied. Furthermore,
the webpage comprises industry group overviews illustrating
which companies are members of the AuSSI and how they rank
relative to their industry peers. In addition, benchmarking
reports for the 21 industry cluster leaders give detailed
insights into the specific opportunities and risks in each
sector and the best-in-class practices that companies are
implementing to meet these challenges. Finally, interested
parties can download the verification letter from PricewaterhouseCoopers
to read the results from their annual verification of our
assessment.
With regards to the feedback we provide to companies, we rely
on our unique global benchmarking capability. We provide companies
with a benchmarking report that summarizes their corporate
sustainability performance and gives them an indication of
where they can improve. Furthermore, we provide companies
with detailed benchmarking data on every single assessment
criteria free of charge thereby allowing them to fully understand
where they stand relative to the best company and the industry
average on a global basis.
SELECTION
AND EXCLUSIONS
Which companies are included in the AuSSI?
The AuSSI comprises the leading 40% in terms of sustainability
out of a universe of 174 companies.
Does a company have to outperform on all three dimensions
(economic, environmental and social) to become part of the
AuSSI?
To be among the sustainability leaders in its industry group
a company typically needs to have a good score, but not necessarily
outperform, on all three dimensions of sustainability. Each
dimension accounts for approximately one third of the total
score.
Are companies in the AuSSI continuously monitored
and if necessary excluded from the index?
Yes, based on the ongoing review process, both the Corporate
Sustainability Monitoring and changes due to IPOs, spin-offs,
mergers & takeovers etc. can lead to the exclusion of
a company. The objective of the Corporate Sustainability Monitoring
is to verify a company's involvement and management of critical
areas such as illegal commercial practices, human rights abuses,
workforce conflicts and large accidents. The monitoring process
is based on a daily media and stakeholder analysis covering
newspapers and newswires from around the world. Once a crisis
situation is identified, the analysts will use a much broader
selection of sources including stakeholder reports and contacts
to the company to assess the severity of the crisis and the
quality of crisis management. An AuSSI member that gets involved
in a severe crisis and does not show a proactive and transparent
way of handling it, can be excluded from the index at any
point in time. The AuSSI index design committee is responsible
for this decision.
Are certain industries excluded from the index?
No. Based on the best-in-class approach, the AuSSI comprises
sustainability leaders from each industry. However, we certainly
do not include a bad company, just because its peers are even
worse. If the highest ranked company in a group has a corporate
sustainability score which is less than one-fifth of the maximum
score, then the whole industry group is deleted from the AuSSI
universe. This did not happen in the assessment of Australian
companies in 2005. As a result, all industry groups are currently
represented in the AuSSI.
The potential inclusion of all industries in the AuSSI gives
companies from all business areas a strong incentive to improve
their sustainability performance. By identifying sustainability
leaders on an annual basis, the AuSSI creates a dynamics within
each industry that calls for constant sustainability improvements.
This is particularly important for highly polluting and socially
sensitive industries. By selecting the best-in-class in each
industry, we recognize that some companies are more responsible
in managing their impacts than others and are thereby leading
their peers towards a more sustainable way of doing business.
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