FAQ
The following lists frequently asked questions about the Jantzi Social Index® and the corresponding answers.
Who created the Jantzi Social Index and why?
The Jantzi Social Index® was created by Jantzi-Sustainalytics, an independent investment research firm that evaluates and monitors the environmental, social, and governance performance of securities. We set out to create a benchmark against which institutional investors could measure the performance of socially screened portfolios. In addition, by tracking the JSI® over time, Jantzi-Sustainalytics hoped to answer the question: How does the application of environmental, social, and governance criteria affect investment performance in the Canadian market?
What is an index?
An index is a statistical tool for measuring the state of the stock market or the economy, based on the performance of stocks or other meaningful components.
What is a benchmark?
A benchmark is a tool for evaluating the success of a process. In order for an index to work as an investment benchmark, it must provide an unbiased model of the market segment it is intended to represent.
What does the Jantzi Social Index represent?
The Jantzi Social Index® represents the behavior of a portfolio of stocks in companies that a socially responsible investor might purchase. Although not perfect, the companies in the JSI® reflect a higher standard of environmental, social, and governance performance, according to Jantzi-Sustainalytics, as compared to those in the S&P/TSX 60 or the S&P/TSX Composite Index.
How was the JSI created?
Jantzi-Sustainalytics first surveyed the environmental, social, and governance criteria used by most social investors in Canada. Jantzi-Sustainalytics' underlying goal was to have the JSI® screens reflect the current state of SRI in Canada. We then defined JSI rating criteria, which were based on our environmental, social, and governance framework for analysing SRI performance and risk in the Canadian Social Investment Database.
Subsequent to defining the rating criteria, Jantzi-Sustainalytics analysed the environmental, social, and governance records of the S&P/TSX 60 (then the S&P/TSE 60) companies. Seventeen companies were eliminated from JSI contention due to the screening process. Jantzi-Sustainalytics then analysed the companies in the S&P/TSX Composite Index (then the TSE 300) that were not part of the S&P/TSE 60, looking for a combination of large market capitalization and industry representation. In addition to suitability with respect to liquidity and sector representation, the 16 equities selected demonstrated an environmental/social/governance record that passed the JSI rating criteria as well. As the last step in the process, Jantzi-Sustainalytics sought to include companies in the JSI that had exceptional social characteristics. For more information click here.
How is the JSI maintained?
Companies are removed from the JSI® upon being acquired by another company. Sometimes a company may split into two companies and only one of the resulting companies is selected to stay in the JSI (since the JSI consists of exactly 60 companies). Occasionally the environmental, social, and/or governance performance of a company may deteriorate, causing Jantzi-Sustainalytics to remove it. When Jantzi-Sustainalytics removes a company from the JSI, we replace it with another company. In the selection process Jantzi-Sustainalytics considers the size of the company, its industry, and, of course, its environmental/social/governance profile.
Does the JSI attempt to copy the S&P/TSX 60?
No. Its purpose is different. The JSI® tries to reflect the market behaviour of Canadian stocks that the average socially responsible investor would find meets their environmental, social, and governance criteria. The S&P/TSX 60 attempts to gauge the performance of the broad market for large capitalization stocks.
Why was the historical backtesting of the JSI done against the TSE 100 and the TSE 300 rather than the S&P/TSE 60?
Jantzi-Sustainalytics and its partner, State Street Global Advisors in Montreal, wanted to backtest the JSI® against the S&P/TSE 60 (now the S&P/TSX 60). However, the TSX had not undertaken such backtesting and therefore the figures were not available.
Why does the JSI own so many of some stocks and so few of others?
The JSI® is a market capitalization-weighted common stock index. The number of shares "owned" by the JSI is calculated by mathematical formula - that is, the index is weighted to reflect the relative size of the companies in it. Thus, the JSI holds many times more shares of BCE Inc. than of Zenon Environmental. If company A is twice as big as company B, then twice as much of company A will be held in the Index compared with company B. The fact that the JSI owns twice as much of one stock as it does of another does not mean that Jantzi-Sustainalytics views the larger holding as a better company. It simply reflects the fact that the larger holding is a larger company.
Were companies chosen for the JSI based on their financial performance?
No. Jantzi-Sustainalytics modeled the JSI® on the S&P/TSE 60 and evaluated companies based only on their environmental, social, and governance performance. Jantzi-Sustainalytics maintained the integrity of the rating criteria at every step of the process and did not overlook a violation of a criterion because the company was a strong financial performer.
For example, originally Jantzi-Sustainalytics did not include Nortel Networks in the JSI, despite the fact that the company was the single most important component of the S&P/TSX 60 in terms of both size and financial performance (hard to believe these days, but true back in 1999). Although Nortel had a good record in some areas, the company violated the JSI's human rights screen. Among other involvements, Nortel supplied equipment, primarily telephone switching equipment, to Burma through 20%-owned Telrad Telecommunications & Electric Industries Ltd., an Israeli company. The human rights abuses perpetrated by the ruling regime in Burma are among the most severe in the world, and there has been a widespread call from many human rights organizations for economic sanctions against the country.
On September 3, 2000, Nortel sold its entire 20% interest in Telrad to Koor Industries Ltd., (which already owned the other 80% of the company). Given Nortel’s sale of its ownership in Telrad, Jantzi-Sustainalytics determined that Nortel was eligible for inclusion in the JSI. Jantzi-Sustainalytics added Nortel Networks to the JSI on December 11, 2000, subsequent to the removal of The Seagram Company Ltd. due to its acquisition by a French-based company.
What are the criteria used to evaluate companies for JSI eligibility?
Jantzi-Sustainalytics developed a comprehensive rating framework for the JSI®. In most issue areas, including: aboriginal relations; community involvement; corporate governance; employee relations; environment; and human rights, the JSI criteria allow for a complete examination of a company's performance record. However, the JSI incorporates several exclusionary indicators, which eliminate firms from contention regardless of what their record of performance may be in other areas. In that regard, the JSI does not include companies that have significant involvement in: the production of nuclear power; the manufacture of tobacco products; or weapons-related contracting. For more information click here.
What is Best-of-Sector?
Jantzi-Sustainalytics developed the Best-of-Sector™ (BoS™) methodology in order to more effectively evaluate the environmental, social, and governance performance of companies. By evaluating each company in relation to its industry counterparts, investors can avoid making whole sectors ineligible for investment, and can therefore continue to invest in companies across all sectors of the Canadian economy. The BoS approach is also consistent with the underlying goal of encouraging positive corporate change, a central goal of the SRI movement. The BoS approach can provide an incentive for companies in sectors facing sustainability challenges to improve their performance. Therefore, the BoS methodology is both financially prudent and consistent with the underlying goals of the majority of social investors in Canada.
The JSI rating criteria appear general in nature. Is there an underlying framework that Jantzi-Sustainalytics uses to analyse companies for the JSI?
Although the JSI® rating criteria may appear general in nature, Jantzi-Sustainalytics' framework for evaluating corporate environmental, social, and governance performance and risk employs a comprehensive set of more than 200 indicators. Jantzi-Sustainalytics also uses a scoring scheme to quantify environmental, social, and governance performance by assigning a numerical score to each indicator for each company. Every indicator has a scoring range as well as a weight, which is intended to reflect the importance of the indicator for the company's peer-group. Jantzi-Sustainalytics' rating criteria and scoring scheme are underpinned by one of the most comprehensive research methodologies in the SRI industry.
Can I use the JSI as an "approved" list?
The JSI® is not meant to reflect the 60 best companies in Canada nor does it presume to represent the only 60 companies that meet high standards of environmental, social, and governance performance. It simply represents a basket of stocks from which social investors might choose to invest based on a certain set of sustainability criteria.
Are there companies I won't like in the JSI?
Because the rating criteira for the JSI® reflect those used by a broad cross section of social investors, not all companies will reflect everyone's standards.
Why are the big five banks included in the JSI
The performance of Canada's big banks is far from perfect. However, in many of the areas in which Jantzi-Sustainalytics evaluates environmental, social, and governance performance and risk, the big five banks have good records. For example, each of the big five banks has made a commitment to diversity in the workplace. Women are fairly well represented in the senior management and board of director ranks, at least compared to corporate Canada overall. The big five banks also offer a wide variety of benefits to their staff, including programs to help employees balance their work and family responsibilities.
Some critics of SRI point to the fact that, although the big five banks do not pollute, and are not directly involved in manufacturing tobacco products or military weapons, for example, they do loan money to companies that do pollute or that are involved in these types of industries. This may in fact be true. However, no one can be sure what companies are in the banks' loan portfolios because this information in not disclosed. Indeed, Jantzi-Sustainalytics has attempted to uncover this type of information in order to compare banks on this measure, but such information is impossible to obtain. If Jantzi-Sustainalytics had access to this data, we would begin incorporating it into our analysis. Until Jantzi-Sustainalytics is satisfied that it can find measurable, reliable, and unbiased data on this topic, our responsibility is to make good decisions and to provide accurate analysis based on "what we know" and not on "what we guess."
Finally, it is important to remember that SRI is about taking responsibility as an owner of companies - not just incorporating sustainability analysis into the securities selection process. Accordingly, some SRI mutual funds in Canada, including The Ethical Funds Company, Real Assets, and Meritas Mutual Funds have continued to dialogue with the banks on this issue. In addition to meeting with board directors and senior executives, they have filed shareholder proposals asking that the banks disclose more information about thier loan portfolios and how they integrate environmental and social criteria into credit risk analysis.
Why are alcohol and gaming companies eligible for the JSI
One of Jantzi-Sustainalytics' underlying goals is to have the JSI® rating criteria reflect the current state of social investing in Canada? Given the evidence from market research in Canada, alcohol and gaming do not appear to be issues that sit high atop the agenda of most social investors in Canada. This appears to be consistent with the fact that most of Jantzi-Sustainalytics' clients do not incorporate these issues into their rating frameworks. Tobacco, on the other hand, still registers as a concern in the market surveys, something which appears consistent with the fact that the vast majority of social investment products in Canada include a tobacco screen. Moreover, tobacco is the only one of the three "products" that when used in moderation still causes significant harm to human health. In fact, alcohol can be beneficial if used in moderation, according to a variety of studies.
Where can I find information about the environmental, social, and governance performance of companies included on the JSI?
Through its Canadian Social Investment Database™ Jantzi-Sustainalytics provides reports of approximately 300 Canadian companies, including those listed on the JSI ®
Are there financial products managed from the JSI?
In April 2001, Meritas Mutual Funds launched the Jantzi Social Index® Fund,
an RRSP eligible mutual fund that invests in common shares of the 60 companies that comprise the JSI®. The fund's holdings of each company match the sector and industry weights, as well as the relative market capitilizations, of the JSI.
In May 2007, iShares launched the first Socially responsible Exchange Traded Fund (ETF) in Canada, iShares CDN Jantzi Social Index® Fund (XEN). XEN is designed for socially responsible Canadian investors to help attain diversification in their portfolios. iShares™ funds are a member of the world's most extensive family of Exchange Traded Funds (ETFs), offering over 200 equity and fixed income funds worldwide. In Canada, iShares trade on the Toronto Stock Exchange, delivering a variety of options for your asset allocation needs. To learn more about iShares, visit iShares
How was the backtesting undertaken on the JSI?
The Jantzi Social Index® was backtested by State Street Global Advisors (SSgA) in Montreal for the period of December 1994 to December 1999. Jantzi-Sustainalytics provided SSgA with a portfolio of screened companies for each year tested. As no dates of approval for inclusion in the index were given, the portfolio had to be restated on a yearly basis with the new universe. It was therefore assumed that all companies were eligible for purchase on January 1st of every year but that the eligible universe also changed every year. Companies were only added when historical information was available. Rebalancing occurred monthly and market capitalization weighting was used. Because of lack of historical information, some smaller companies had to be excluded over certain time periods.