20 Sustainability Winners and Losers

Sustainable investing doesn't have to mean lending Uncle Ned a hundred bucks for his apocalypse-proof shelter. A new update to the Dow Jones Sustainability Indexes reveals the best and worst corporations as measured by economic, environmental, and social criteria. Read below to see which corporations are setting their sights on long-term returns -- and which corporations aren't.

Sustainability: What is it good for?
Since 1995, boutique investment firm SAM has been attempting to incorporate "financial and sustainability insights into a structured investment process." In coordination with S&P Dow Jones Indices, the Dow Jones Sustainability Indices family offers 55 products and manages about $6 billion in assets.

Indexes are based on different geographies, but they also include both selection and screening tactics. Selection is the active decision to include one or more specific stocks in a fund due to positive characteristics. Screening is the passive dismissal of a group of stocks based on one or more exclusionary criterion. For the full details, check out SAM's guidebook (link opens PDF file) explaining the ins and outs of its decision-making process.

The index
For this article, let's keep our sights on the North American sustainability index. Here's SAM's selection process:

  1. Identify the 600 largest U.S. or Canadian countries across 55 sectors.
  2. Use sustainability criteria to select the top 20% of companies in each sector.
  3. Invest in approximately 45% of these top companies in each super-sector.

For this index, 140 companies across 49 different sectors made the final cut.

Sustainability tryouts
This year, SAM analyzed 1,544 companies for spots within their sustainability indexes. For the North American index, there were quite a few shakeups in the listings. Here's a list of who made the team and who got cut:

10 Largest Additions (by market cap)

10 Largest Removals (by market cap)

ExxonMobil

Verizon Communications

Microsoft

Time Warner

Altria (NYSE: MO  )

Potash Corp of Saskatchewan (NYSE: POT  )

DuPont

Freeport-McMoRan Copper & Gold (NYSE: FCX  )

Goldcorp (NYSE: GG  )

TransCanada

Enbridge

Bank of New York Mellon

Ecolab

Allergan

TE Connectivity

Consolidated Edison

Waste Management (NYSE: WM  )

Dell

Liberty Global

Intuit

If you're surprised by some of the names up here, remember that SAM seeks to identify sector leaders across the board and doesn't necessarily turn a blind eye to tobacco, oil, or mining companies.

Moreover, SAM isn't alone in its praise for these companies. For instance, Altria ranked 15th on Corporate Responsibility Magazine's 2012 "100 Best Corporate Citizens List" and first in its industry for social responsibility by Fortune. Waste Management, recently lauded by the Carbon Disclosure Project for its emissions reductions, also added its name to the list of companies picked by SAM.

After being removed from the list in 2011 amid allegations of human rights violations and environmental contamination, mining company Goldcorp reclaimed its place this year.

After earning a place among sustainable companies in 2011, mining companies Freeport-McMoRan Copper & Gold and Potash Corp of Saskatchewan were both removed from this year's lineup. Indonesia's National Commission on Human Rights stated that Freeport incites "heated tension and unnecessary violence" in connection with its Papua mines, and Freeport faces stiff fines from state and federal regulators for allegations of pollution around its mines in Arizona. Potash Corp was sued by New Brunswick community members in March 2011 for environmental damages to their land and has faced recent opposition to a proposed sulfur-melting plant in North Carolina.

As of September, the Dow Jones Sustainability North America Index's top five holdings are Chevron, General Electric, AT&T, IBM, and Procter & Gamble. Since its inception in 2005, the North American sustainability index has gained 25%, although its benchmark index has climbed more than 30%.

Most likely, a deletion from this index won't have much of an impact on the stock's performance. However, an addition to the index is an excellent opportunity for companies to show themselves in a new light.

A quick Google Trends analysis shows that "sustainability index" searches and news references have spiked around 50% in the last month.

Source: Google Trends.

Using sector-specific comparison metrics is an important way to examine every company through a social or environmental lens.

Investors seek diversification across all sectors. Even if a company isn't in the direct business of societal improvement or environmental conservation, it's useful to know whether a corporation's business model incorporates practices that will benefit it and its consumers in the long run.

In what I believe is the best summary of why creative firms have a superior philosophy, SAM states that it "believes that financial analysis is not complete if it ignores material extra-financial factors." Be sure to go the extra mile, incorporate your own criteria into your investment strategy, and feel more confident than ever in your portfolio picks.

If you need some ideas, be sure to check out The Motley Fool's top stock for 2012. This special free report details exactly why this emerging-market stock's a winner and where it's headed in the years to come. But hurry -- it's available for a limited time only, so grab your free copy today.

Fool contributor Justin Loiseau owns shares of General Electric and is generally electrified by sustainably minded companies. You can follow him on Twitter @TMFJLo, and on Motley Fool CAPS @TMFJLo.

The Motley Fool owns shares of IBM, Waste Management, ExxonMobil, Freeport-McMoRan Copper & Gold, Microsoft, and Ecolab. Motley Fool newsletter services have recommended buying shares of Chevron, Procter & Gamble, Microsoft, and Waste Management, as well as writing a covered strangle position in Waste Management, creating a synthetic long position in IBM, and creating a synthetic covered call position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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