Why investors are serious about sustainability
Novozymes ranks among the top in the Dow Jones Sustainability Index. But why does the ranking matter to investors and what do we learn from it? We asked two investment specialists from RobecoSAM to explain.
But to better understand why the ranking matters to
investors, and how it impacts our business, we spoke to Christopher
Greenwald, Head of Sustainability Investing Research and Rashila Kerai,
Sustainability Analyst, both from
that conducts the sustainability research for the
DJSI and invests in sustainable companies around the globe.
Novozymes: What is RobecoSAM’s role in the Dow Jones Sustainability Index ranking?
Christopher: We’re an asset manager – an investor - that focuses on sustainable investment strategies. We’re driven to understand how companies derive business value from their sustainability practices, and how this translates into better long-term financial performance. We consider which factors are most materially relevant in each industry and how companies perform in these factors, and this has an impact on the financial evaluations of companies.
Is sustainability a buzzword, or actually important for investors?
Rashila: Sustainability is not static; it evolves over time with different emerging issues. We try to update the DJSI questionnaire with upcoming issues that are important for long term performance, and we evaluate how companies are managing these issues.
Christopher: It’s about connecting sustainability issues with the business case. As investors, we have to identify companies that will outperform in the long term. New and emerging sustainability issues are important, so we ask companies to explain their own process to identify material issues, and how they make a link between these issues and business cases. It differs from company to company, but right now issues such as climate change, energy efficiency, and product environmental impact are at the top of the list.
Which part of the ranking do investors value the most?
Rashila: A lot of work goes into the DJSI assessment, so it’s comprehensive and impartial. Investors know that it’s a very competitive ranking, so they can use it as a bench mark. So being in the ranking is in itself very valuable to investors.
For companies in the Chemical Industry sector of the Index, the most important issues are environmental management, product stewardship, energy use and innovation management. These are important when we think about which companies to highlight in investment making – to spot risks and to understand trends that can drive business. For example, in the area of product stewardship, more and more companies are starting to replace traditional materials with safer biobased solutions. We view this positively for a company like Novozymes that is uniquely placed to fulfill this growing demand.
How do companies benefit from the ranking?
Christopher: The primary benefit is that companies can use the ranking to improve their own sustainability performance. Companies can use it as a benchmarking tool to measure performance and compare with peers, especially given that the world’s leading companies participate in the ranking. It’s an objective way to see how they are doing and which areas to improve and further invest in.
Participating in the ranking also means gathering information from the whole organization. This helps create awareness of sustainability performances in different departments, which in turn leads to new ideas for improved disclosure on materially relevant sustainability topics for investors.
Last year, Novozymes moved from being ranked in the Biotechnology Industry to the Chemicals Industry of the DJSI. What does that mean for us?
Christopher: The Chemical Industry is very competitive with a significant number of companies with relatively advanced development on sustainability issues, so ranking in the top in this sector has a bit more meaning and significance. Investors know this, so being in the top in a competitive sector says a lot.
It can also have a positive benefit for the many other companies within the sector. When they see Novozymes is doing well and rising over time, it can influence them – they can learn from Novozymes’ unique, sustainable and innovative strategy, and begin to think of the importance of bio-based alternatives to traditional chemical products, where we see an increasing number of opportunities and growing demand from the market.
About the Dow Jones Sustainability IndexThe Dow Jones Sustainability Index is an international sustainability ranking system that comprises the leading companies around the world, and is run by S&P Dow Jones and RobecoSAM Sustainability Investing. The survey results, which are published annually, are based on a comprehensive sustainability analysis on three overall dimensions: economic, environmental, and social as well as a number of sub-dimensions. These include corporate governance, product stewardship, operational eco-efficiency, and supply chain management, and occupational health and safety.