Do irresponsible corporate activities prevent membership in sustainable stock indices? The case of the Dow Jones Sustainability Index world

The study analyses the real-life results from the DJSI World selection process and investigates whether companies are treated differently because of sectoral or geographical diversification needs of the index; furthermore, the question whether its methodology penalises ESG-related irresponsible corporate activities is investigated. The last is an important issue, as it is not unusual to find constituents of sustainable indices implicated in corporate scandals. This is a striking fact, contradicting the ethical and sustainable imperative such companies are supposed to comply with. The authors scrutinise data from a data panel containing 2872 firms between 2011 and 2016 and estimate a variety of logit models. The empirical evidence indicates that ESG-related controversies affect the probability to be included in the DJSI World. Surprisingly, whilst controversy-implicated companies which are already index members were penalised, the likelihood of selection for those companies which have not been selected for the index yet, remained unchanged. (c) 2021 Elsevier Ltd. All rights reserved.

Automated summary

This study analyzes the real-life results from the DJSI World selection process, investigating whether companies are treated differently due to sectoral or geographical diversification needs and whether its methodology penalizes ESG-related irresponsible corporate activities. The empirical evidence shows that ESG-related controversies do affect the probability of being included in the DJSI World.