And let’s be clear immediately. This haircut is well deserved, but only secondary for dropping out of the index. The primary reason is the decision to use this index this way in the first place! And Shell is not the only Dutch company that has decided to use the DJSI as a proxy for sustainability in the executive board’s bonus.

 

I believe a bonus should be granted (if at all) on the basis of realizing a specific (ambitious) target by managing progress. There should be an obvious link between what one does and what one achieves. The result should be relevant and the objective material.

 

The DJSI simply falls short on all aspects. The scores are based on questionnaires that are being filled out by staff members of any company. The quality of the information is not audited. We know of cases where through “backwards engineering” significant improvements of scores have been achieved. The information on which the questionnaires are based is comprehensive; a container full of both material aspects and non-sense indicators. There is no way any board member should want to manage its company on the breadth of this index. There is no way one can achieve real progress across the board of these indicators simultaneously in a short period of time.

 

Analists of the SAM-group (a Robeco and thus a Rabobank subsidiary) weigh the information they are being provided with. They are basically managing their own little “black box”.  The outside world does not get the total overview of the ranking: only sector leaders are being mentioned. Companies themselves get feed-back but only on their own scores. And the scoring of SAM seems to be changing too: Shell has this year been hit by their problems in Nigeria, which are not particularly new. It is not clear at all what has justified the change of opinion at SAM.

 

In short: SAM Group has a problem. Whereas the DJSI has proven to be a popular index for many companies and has been instrumental to raise the sustainability bar across industries, the lack of transparency does not match basic sustainability practices anymore. Not just companies have to improve on their performance, SAM has to do the same! If SAM does not increase transparency, the DJSI will soon lose its credibility.

 

Moreover, all executive boards (or more specifically Supervisory boards)  that have decided to use DJSI as a proxy for a sustainability bonus should immediately change their course. Take DSM as an example. The DSM board has a clear objective that they can manage themselves and that will result in true sustainability improvement instead of the marketing of an index.

 

 

 

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