Dow Jones Sustainability Indexes (DJSI) Annual Review 2005 Zurich, Switzerland 7 September 2005 A cooperation of Dow Jones Indexes, STOXX Ltd. and SAM Group 1
Content I. Key Facts II. III. IV. Research Highlights Dow Jones Sustainability World Indexes Dow Jones STOXX Sustainability Indexes 2
DJSI Overview Integrated assessment of economic, social and environmental criteria with a strong focus on long-term shareholder value Consistent rule-based methodology, primary research (direct contact to companies) Coverage of 58 sectors world-wide using industryspecific assessment criteria Yearly review to reflect best-practices and continuous monitoring of companies 56 licenses covering asset managers in 14 countries. 3.3 billion EUR (4.1 billion USD) managed against the DJSI family 3
DJSI Partners Creates and licenses indexes for use in investment products, calculates 3,000+ indexes in real time Provides and services the Dow Jones STOXX SM indexes, Europe's leading regional equity indexes. Focuses exclusively on sustainability investments, offers indexes, research, asset management and private equity services 4
DJSI Assets September 1999 - August 2005 Assets based on DJSI (in million EUR) 3500 3000 2500 2000 1500 1000 500 0 09/99 03/00 09/00 03/01 09/01 03/02 09/02 03/03 09/03 03/04 09/04 03/05 5
Content I. Key Facts II. III. IV. Research Highlights Dow Jones Sustainability World Indexes Dow Jones STOXX Sustainability Indexes 7
Assessment Key Insights 2005 Sustainability is continuing its move from corporate strategy and operations into product and service offerings. Advanced integration of eco-design requirements in the electronics industry, increasing implementation of environmental criteria in project financing and a wider use of life cycle analysis in the chemical industry are examples of this trend. Companies are converging in first generation sustainability themes such as corporate governance and environmental reporting. Corporate focus and the differentiation between leaders and laggards is shifting towards sector-specific issues such as healthy nutrition in the food industry, business opportunities for consumer goods in emerging markets, as well as anti-crime prevention in the financial sector. Transparency and accountability along the whole supply chain are increasingly visible through policies and control mechanisms. Key aspects in that context include the definition of environmental and social supplier standards as well as auditing procedures. Industry groups such as the Business Social Compliance Initiative (BSCI) are adding further impetus to this development. 8
Assessment Key Insights 2005 (cont d) Sustainability indicators are increasingly linked to financial value drivers and integrated into Annual Reports. New regulations, such as the UK Operating & Financial Review (OFR) standard, are important drivers behind this trend. Corporations widely recognize and acknowledge the importance of human capital management for their success. However, there is still considerable scope for improvements in all industries in measuring, controlling and reporting on issues such as talent attraction, organizational learning, and employee performance indicators. Overall, sustainability performance continues to advance across all sectors. At the same time, substantial room for progress in sustainability remains on the corporate agenda. 9
Assessment Universe 2005 Number of invited companies in 2005 (in 2004) DJSI World Universe = 2,500 companies DJSI STOXX Universe = 600 Invitations sent = 2,549 (2,550) Companies analysed globally = 1,073 (978) - North America: 438 (370) - Europe: 380 (359) - Japan: 125 (128) - Asia / Pacific ex Japan: 109 (100) - Latin America: 12 (11) - South Africa: 9 (10) Companies completing survey = 541 (522) Companies analysed based on public information only = 532 (456) PricewaterhouseCoopers assurance of research process and quality. 10
Assessment Criteria (I) The weighting scheme reflects the importance of industry-specific criteria % 33% 100% 40% 33% 60% 33% 20% Economic Dimension Environmental Dimension Social Dimension Total Industry Criteria General Criteria Please note that actual weightings differ amongst every industry group to reflect the sector s specific exposure to sustainability trends. The graph above is illustrative of the approximate weightings. 11
Assessment Criteria (II) Criteria are reviewed annually to ensure an accurate and up-to-date reflection of best-practice in corporate sustainability DJSI 2005 General Criteria (Examples) Corporate Governance Codes of Conduct Environmental and Social Reporting Human Capital Development Talent Attraction & Retention Stakeholder Engagement Changes compared to 2004 (Examples) Refined evaluation of executive/non-executive board composition and audit/non-audit related fees. Additional analysis of codes of conduct coverage with regard to employees, subsidiaries, joint ventures and suppliers. Expanded analysis to cover availability of position papers on public issues. Amended criteria to evaluate corporate processes for skill mapping and development. Changed to reflect latest development in empirical research related to Human Capital. Refined assessment scheme to assess corporate engagement with external stakeholders. Please note that a complete list of all general criteria including their weightings within the SAM assessment is available at www.sustainability-indexes.com (-> Assessment -> Criteria and Weightings). 12
Assessment Criteria (III) In addition to the refinement of the general assessment criteria, we have also reviewed and amended our set of industry-specific criteria DJSI 2005 Examples of industry specific criteria Climate Strategy (Utilities) Emerging Markets (Food & Beverage) Anti-crime prevention (Banks, Financial Services) New Aspects Assessed In light of the EU Emission Trading Scheme, which started early this year, SAM s analysis of climate strategies has been amended to cover the gap between CO2 allowances received and expected emissions. Entering and developing new markets which grow faster than home markets becomes crucial for companies operating in mature industries such as the food industry. SAM expanded its criteria in this sector to cover business strategies and recent results in emerging markets in terms of revenues, product portfolio and pricing. Crime prevention remains key in the financial industry. SAM has expanded its assessment of anti-crime policies and systems with a particular focus on customer due diligence and politically exposed persons (PEPs). 13
Assessment Focus (I) Corporate Governance by Industry Average all sectors: 65.1 Best score: 96.5 +1.1 + 0.6-1.4-1.6 + 2.9 + 3.6 + 5.2 Technology Health Care Consumer Services Oil & Gas Industrials Financials Utilities - 4.0-2.3 Consumer Goods Telecommunications - 5.0 Basic Materials 59 60 61 62 63 64 65 66 67 68 69 70 71 Score 2005 and deviation from average score 2005 by industry Source: SAM Research 14
Assessment Focus (II) Environmental Policy and Management by Industry Average all sectors: 60.3 Best score: 100 + 9.4 + 8.3 +8.2 +7.7 Basic Materials Consumer Goods Utilities Oil & Gas + 6.0 Industrials + 2.0 + 3.6 Telecom m unications Technology - 6.1 Health Care - 7.7 Consumer Services - 11.1 Financials 48 50 52 54 56 58 60 62 64 66 68 70 Score 2005 and deviation from average score 2005 by industry Source: SAM Research 15
Assessment Focus (III) Environmental Performance by Industry Average all sectors: 28.4 Best score: 100 + 17.2 + 21.6 Basic Materials Utilities +9.3 +10.6 Consumer Goods Telecommunications + 2.5 + 2.3 + 1.6 Oil & Gas Health Care Industrials - 5.2 Technology - 12.7-11.1 Consumer Services Financials 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 Score 2005 and deviation from average score 2005 by industry Source: SAM Research 16
Assessment Focus (IV) Human Capital Development by Industry Average all sectors: 27.3 Best score: 100-6.7-4.8-1.8-2.3 +2.1 + 1.5 + 1.1 + 7.8 + 7.5 + 9.3 Utilities Telecom m unications Basic Materials Oil & Gas Industrials Consumer Goods Financials Technology Health Care Consumer Services 19 21 23 25 27 29 31 33 35 37 Score 2005 and deviation from average score 2005 by industry Source: SAM Research 17
Assessment Focus (V) Labor Practice Indicators by Industry Average all sectors: 55.8 Best score: 100-2.5-2.6-1.1-0.7 + 0.3 +1.5 + 1.4 + 2.5 + 3.6 + 6.1 Utilities Oil & Gas Basic Materials Industrials Telecom m unications Consumer Goods Health Care Technology Consum er Services Financials 52 53 54 55 56 57 58 59 60 61 62 63 Score 2005 and deviation from average score 2005 by industry Source: SAM Research 18
Assessment Sources SAM uses four information sources for the DJSI Assessment 1. Online Survey 2. Company documents and policies 3. Company interaction & visits 4. Media and Stakeholder Analysis (MSA) 19
Assessment Transparency On web site www.sustainability-indexes.com: SAM Online Survey Methodology, criteria and weightings DJSI Guidebooks Overviews of results for all 18 supersectors Detailed benchmarking reports of supersector leaders External verification letter from PWC Feedback to companies (free of charge) Summary benchmarking report to all index members Detailed scores on every criteria including company score, industry average and best score in industry to all participating companies. 20
Content I. Key Facts II. III. IV. Research Highlights Dow Jones Sustainability World Indexes Dow Jones STOXX Sustainability Indexes 21
DJSI World Selection 2005/2006 Dow Jones Global Index 2,500 largest companies 58 DJSI sectors 34 countries Component Selection Top 10% of companies in terms of sustainability in each DJSI sector 20% target market cap coverage in each supersector DJSI World 317 Components 58 DJSI sectors 24 countries 22
DJSI World Subsets DJSI World (317 Components) DJSI World ex Alcohol (310 Components) DJSI World ex Tobacco (315 Components) DJSI World ex Gambling (307 Components) DJSI World ex Armaments & Firearms (313 Components) DJSI World ex Alcohol, Tobacco, Gambling, Armaments & Firearms (295 Components) 23
DJSI World Performance 08/04-08/05, USD, Total Return Index 25% DJSI World DJGI World DJ Large Cap MSCI World 20% 18.0% 20.4% 18.0% 18.1% 15% 10% 5% 0% 24
DJSI World Sector Allocation As of 31 August 2005 Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Financial Services Food & Beverage Health Care Industrial Goods & Services Insurance Media Oil & Gas Personal & Household Goods Retail Technology Telecommunications Travel & Leisure Utilities 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% DJGI World DJSI World Current DJSI World New 25
DJSI World Country Allocation As of 31 August 2005 Australia Austria Belgium Brazil Canada Chile Cyprus Czech Republic Denmark Finland France Germany Greece Hong Kong Hungary Indonesia Ireland Italy Japan 0% 10% 20% 30% 40% 50% DJGI World DJSI World Current DJSI World New 26
DJSI World Country Allocation (cont d) As of 31 August 2005 Malaysia Mexico Netherlands New Zealand Norway Philippines Poland Portugal Singapore Slovenia South Africa South Korea Spain Sweden Switzerland Taiwan Thailand UK USA Venezuela 0% 10% 20% 30% 40% 50% DJGI World DJSI World Current DJSI World New 27
DJSI World New Supersector Leaders Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Financial Services Food & Beverage Healthcare Industrial Goods & Serv. BMW Westpac Banking Corp. Alcan DSM Holcim British Land Unilever Novo Nordisk 3M 28
DJSI World New Supersector Leaders continued Insurance Media Oil & Gas Personal & Household Retail Technology Telecommunications Travel & Leisure Utilities Swiss Re ITV Statoil Procter & Gamble Kesko Intel BT Group Sodexho Severn Trent 29
Content I. Key Facts II. III. IV. Research Highlights Dow Jones Sustainability World Indexes Dow Jones STOXX Sustainability Indexes 30
DJSI STOXX Selection 2005/2006 Dow Jones STOXX SM 600 600 Companies 55 DJSI sector clusters 17 countries Component Selection Top 20% leading sustainability companies in each DJSI sector cluster 45% target market cap coverage in each supersector DJSI STOXX 156 Components 55 DJSI sector clusters 12 countries 31
DJSI STOXX Subsets DJSI STOXX (156 Components) DJSI STOXX ex Alcohol, Tobacco, Gambling, Armaments & Firearms (145 Components) DJSI EURO STOXX (72 Components) DJSI EURO STOXX ex Alcohol, Tobacco, Gambling, Armaments & Firearms (69 Components) 32
DJSI STOXX Performance 08/04-08/05, EUR, Total Return Index 30% DJSI STOXX DJ STOXX 600 DJ STOXX 50 MSCI Europe 25% 22.7% 25.1% 22.2% 24.8% 20% 15% 10% 5% 0% 33
DJSI STOXX Sector Allocation As of 31 August 2005 Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Financial Services Food & Beverage Health Care Industrial Goods & Services Insurance Media Oil & Gas Personal & Household Goods Retail Technology Telecommunications Travel & Leisure Utilities 0% 5% 10% 15% 20% DJ STOXX 600 DJSI STOXX Current DJSI STOXX New 34
DJSI STOXX Country Allocation As of 31 August 2005 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Norway Portugal Spain Sweden Switzerland UK 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% DJ STOXX 600 DJSI STOXX Current DJSI STOXX New 35
DJSI STOXX New Supersector Leaders Automobiles & Parts Banks Basic Resources Chemicals Construction & Materials Financial Services Food & Beverage Healthcare Industrial Goods & Serv. BMW ABN Amro BHP Billiton DSM Holcim British Land Unilever Novo Nordisk SKF 36
DJSI STOXX New Supersector Leaders continued Insurance Media Oil & Gas Personal & Household Retail Technology Telecommunications Travel & Leisure Utilities Swiss Re ITV Statoil adidas-salomon Kesko L.M. Ericsson BT Group Sodexho Severn Trent 37
SAM Indexes Phone +41 1 395 2828 info@sustainability-indexes.com www.sustainability-indexes.com 38