industry SPOTLIGHT

BY BERNADET TE BANKER

Doing Well By Doing Good

profits. What investors want is, in a word,
stocks of companies that operate with a
heart and a head.
Despite the negative headlines, many
companies are delivering on their goals of
financial and social sustainability. Why?
Because it makes business sense.
But where can investors find these
stocks? Fortunately, theres a list of them
and they are all part of the Dow Jones
Sustainability Index. The index targets
companies that aim to create long-term
shareholder value by embracing opportunities and managing risks deriving from
economic, environmental and social
developments, according to officials at
Dow Jones.
The selection of the index is
extremely rigorous and has set the
benchmark for other indices, says Abhay
Gadkari, the investor relations manager
for Intel Corp. (INTC), a high-profile
participant in the index.
To qualify for the prestigious index,
Dow Jones requires companies to achieve
superior grades in five distinct areas.
WITH MARKET DECLINES AND CORPORATE SCANDALS,
Strategy: Integrating long-term ecoWEARY INVESTORS ARE LOOKING FOR COMPANIES TH AT
nomic, environmental and social aspects
ARE FINANCIALLY AND SOCIALLY SUSTAINABLE.
in their business strategies.
Innovation: Investing in product and
service innovation that focuses on technologies and sysTHINK ABOUT IT. With the sting of the Enron debacle
tems, which use financial, natural and social resources in
and the questionable accounting practices at firms like
an efficient, effective and economic manner over the
WorldCom and Xerox still fresh, it seems the best way to
long-term.
play todays market is to find companies whose manage Governance: Setting the highest standards of corporate
ments are honest and ethical. But in this challenging econgovernance, including management quality and responsiomy, you also need to find companies that can generate

RESEARCH AUGUST 2002

INDUSTRY SPOTLIGHT: BE RN A D E TTE BA N KE R

bility, organizational capability and

corporate culture.
Shareholders: Meeting shareholders' demands for sound financial returns, long-term economic
growth, long-term productivity
increases, sharpened global competitiveness, superior intellectual capital
and reputation.
Employees and other stakeholders:
Encouraging long lasting social well
being in communities where companies operate, engaging in an active dialog with different stakeholders (e.g.
clients, suppliers, employees, government, local communities and NGOs)
and responding to their specific and
evolving needs, thereby securing superior customer and employee loyalty.
Telecom
More and more high-profile companies and smart investors are looking at
the Dow Jones Sustainability Index as a
key measure of success.
We take the index very seriously
and are very proud of our [inclusion in
the index], says Nils Paelmann of
Deutsche Telekom AG (DT). We are
one of the leaders in environmental
and economic sustainability.
Nils points to the fact that Deutsche
Telekom believes in the vision of development that was formulated at the
1992 Earth Summit in Rio de Janeiro,
which argued that companies should
weigh the factors of economic prosperity, social justice and environmental
protection equally.
On the economic and environmental fronts, Deutsche Telekom is
looking to ways to protect the environment and cut costs at the same
time. The firm is also stressing com-

munication and cooperation as key

elements in its policy to act responsibly toward its employees specifically
and society in general.
Though telecom investing has been
tough recently, in May officials at
Deutsche Telekom said they expected
significant revenue growth and a further increase in earnings before interest, taxes, depreciation and amortization throughout this year.
Deutsche Telekom isnt the only
globally recognized telecommunications company that is a participant in
the index. Nokia (NOK), the worlds
largest mobile phone maker, is also
making great strides in its efforts to
find the point where a good investment meets a good company. Nokia
officials say that they recognize the
corporations role in developing technological solutions that support sustainable development ecologically,
economically and socially.
The company works on environmental projects with the World
Wildlife Fund and has a global partnership with International Youth
Foundation that focuses on education. Nokia has made significant
donations and given disaster relief
support through charities and relief
organizations like the Red Cross,
UNICEF and others.
Nokia is also working on a turnaround in its stock. The world's largest
mobile phone maker, Nokia recently
trimmed its sales target forecast for the
second half of 2002, but maintained its
profit target for the year.
Technology
Several top technology companies
have also been recognized as solid

corporate citizens through their

inclusion in the index. Computer
Associates International Inc.s (CA)
efforts to do the right thing has put a
lot of smiles on peoples faces. One of
the companys biggest efforts is The
Smile Train, an international children's charity launched in 1999. The
Smile Train helps millions of children
in the world suffering from cleft lip
and palate. Its comprehensive
approach to the problem of clefts
includes free surgery for children, free
training for doctors, and research to
help find a cure.
Computer Associates also uses its
technology to help the National Center
for Missing & Exploited Children
(NCMEC), an internationally recognized organization dedicated to resolving cases of child abduction, molestation and sexual exploitation. Today,
through donations of management
technologies
from
Computer
Associates, NCMEC is able to capitalize on the power of the Internet to
carry out its mission more effectively
than ever before.
CA has always believed in the
notion that technology should serve
humanity first, said Susannah
Schaefer, Computer Associates vice
president and a NCMEC board member. We thoroughly enjoy working
with the folks at NCMEC in the U.S.
and around the world, and are delighted to be providing solutions and services that make a critical difference in
so many lives.
Many long-term investors are smiling at Computer Associates. Despite a
tough market for software, the company recently achieved quarterly operating breakeven earlier than anticipated

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INDUSTRY SPOTLIGHT: BE RN A D E TTE BA N KE R

and exceeded its performance for the

March 2002 quarter compared to the
December 2001 quarter in several key
areas. For instance, total revenue
increased to $772 million from $747
million, net operating income
improved to $3 million from a loss of
$33 million and total new deferred
subscription revenue increased to $656
million from $554 million.
Intels Gadkari thinks that participation in the Dow Jones Sustainability Index
makes a critical difference to customers,
investors and the public in general.
The Dow Jones Sustainability
Index is by far the most recognized
socially screened index in Europe and
known to all in the SRI (socially
responsible
investing)
circles,
Gadkari says. We were in the inaugural index and have been ever since,
culminating with our recognition as
Sector Leader for 2002.
He says that the semiconductor
giants inclusion in the index is the
result of its efforts to be proactive and
open with the socially responsible
investing community. In this era of
skepticism towards large corporations,
Intel believes that these efforts will help
its shareholders. The company is correct. Researchers at DePaul University
found that the financial performance
of companies on Business Ethics magazine's 100 Best Corporate Citizens list
performed significantly better than
others in the S&P 500. Notably, Intel is
ranked #11 on Business Ethics list.
Though the semiconductor market
is starting to pull out of a severe downturn in sales, Intel is still delivering
earnings for shareholders. First-quarter net income was $936 million, up 86
percent sequentially and up 93 percent

RESEARCH AUGUST 2002

year-over-year. Earnings per share were

$0.14, double the $0.07 in both the first
and fourth quarters of 2001.
Health Care
Companies like Pfizer Inc. (PFE) are
helping out by more than creating
medicines that extend and improve the
quality of our lives. According to Hank
McKinnell, Ph.D., Pfizers chairman
and chief executive officer, the purpose
of the world's largest and fastest-growing pharmaceutical company is to help
realize humanity's quest for longer,
healthier, happier lives.
Our company is thoroughly
grounded in our values, McKinnell
says. Our values include leadership,
innovation, performance, teamwork,
customer focus, and respect for people.
These values guide every decision we
make, everywhere we make them.
For example, McKinnell toured
Africa in April as part of a U.S. delegation led by Secretary of Health and
Human Services Tommy Thompson.
The group took a firsthand look at the
HIV/AIDS epidemic in four African
countries Mozambique, South
Africa, Botswana and Ivory Coast
and considered various ways to combat
the problem. At the time, McKinnell
announced that Pfizer will support a
new initiative to recruit, train and
equip medical volunteers in the
Limpopo District of South Africa. Like
Peace Corps workers, the volunteers
will be given 18-month assignments in
which they will care for HIV-infected
patients and educate others on preventing infections.
HIV/AIDS is the most serious
public-health issue of our time,
McKinnell said.

McKinnell knows more than social

issues; he knows how to run a successful company. Pfizer reported that net
income in the first quarter of 2002
increased 22 percent to $2.4 billion and
diluted earnings per share grew 23 percent to $.37. Not bad for a health care
company whose industry is being hit
hard by investors.
Another major health-care company that is doing what it can to help
combat illness around the world is
Swiss-based Novartis (NVS). The company is the brains behind Diovan/CoDiovan, which treats hypertension,
Neoral/Sandimmun, an immunosuppressant agent used in transplantations
and Lamisil, an antifungal agent. These
are some of the drugs that have driven
the companys stock up nearly 20 percent over the past year.
The company is delivering on its
products. In the first quarter of 2002,
Novartis group sales were up 13 percent in local currencies. Its pharmaceuticals were up 16 percent in local
currencies, driven by strong demand
for cardiovascular, oncology and
ophthalmic products. Net profits
increased 20 percent, driven by sharp
rises in operational performance and
financial income.
Our consistent strategy of investing in innovation and growth resulted
in the continued dynamic performance, Dr. Daniel Vasella, M.D.,
chairman and chief executive officer
said. We gained segment share in the
critical U.S. market and strengthened
our leadership in the cardiovascular
and oncology fields. In 2002, we plan
to further invest in R&D to enhance
our competitive edge over the long
term, and will focus our resources on

INDUSTRY SPOTLIGHT: BE RN A D E TTE BA N KE R

growing our strategic brands.

Part of Novartis strategy includes its
efforts towards sustainability. Its efforts
include supplying at cost an innovative
malaria treatment Coartem to
the World Health Organization
(WHO) for use in developing countries. It serves as a powerful tool against
an illness that today kills one child
every 20 seconds in Africa. And, in a
global effort to eliminate leprosy, the
Novartis Foundation for Sustainable
Development provides multi-drug
therapy for free to the WHO. It is a $35
million commitment to eliminate the
disease by 2005. In addition, there are
various patient-assistance programs for
leukemia and support projects for the
children of AIDS victims.
Thanks to the success of our business
in 2001, it was possible for us once again
to support needy and financially disadvantaged patients and to launch new initiatives for their benefit, Vasella said.

15, 1994, to commit $1 trillion to help

10 million American families achieve
the dream of homeownership by the
end of the year 2000.
Another real estate company in the
Sustainability Index is Equity Office
Properties Trust (EOP).The company
has dramatically broadened its investor
base in the past couple of years
through a global bond offering and
recognition in listings such as the S&P
500, the Fortune Most Admired and
the Fortune 500.
Equity Office has the advantage in
appealing to investors who are partial to
environmentally and socially conscious
companies. Under the Dow Jones
brand, this is a leading index for these
investors, says Diane Morefield, senior
vice president of investor relations for
Equity Office Properties Trust. We see
the Dow Jones Sustainability Index as
another means to introduce EOP and its
principles to new investors.

Real Estate
One of the best stocks in the market for
many years has been Fannie Mae. In
fact, if you purchased shares of Fannie
Mae at the beginning of 1985 and held
them until current levels, you would
have multiplied your money by a factor
of more than 50!
Fannie Mae officials see their business as one of helping people buy
homes. The companys mission is to
provide affordable housing and homeownership for low-, moderate-, and
middle-income Americans. This
unique public mission results in what
the company believes is a heightened
sense of corporate responsibility. Proof
of this came when the company delivered on the promise it made on March

Food & Beverage

Aholds corporate social responsibility
drives both its profile and its profits.
Because the companys consumer-driven businesses demand high quality
and consistent foods, services and customer satisfaction, sustainability is
integral to Ahold's business philosophy.
Ahold strives for best practice in all
areas of its business and is committed
to adding value to all stakeholders.The
bottom line is sustainability is good for
business, says James Dausch, investor
relations manager for Ahold (ADR
NYSE:AHO), a grocery-store retailer
which has been a component of the
index since its inception in September
1999, and has seen double-digit earnings growth for the past six years.

We have been committed to corporate social responsibility long before the

index was established, he says. We are
pleased that our efforts and commitment
to the environment and communities
have been recognized by the DJSI.
Though Ahold is a trans-continental corporation, it thinks about how to
improve the local communities in
which it operates. Ahold operating
companies including Giant, Tops
and Stop & Shop in the United States,
and Albert Heijn in The Netherlands
take the lead in revitalizing inner
cities by opening stores in economically disadvantaged neighborhoods previously lacking a full-service supermarket, while participating in neighborhood groups and local government to
improve the overall environment.
Its good for business, and its good
for the local economy, creating mutuallybeneficial economic advances with lasting
community improvements, Dausch says.
With Aholds impressive string of
six years of double-digit earnings
growth in a row, sustainability is also
good for investors.
R
The following clients
included in the Dow Jones
Sustainabilty Index have
free Investor Fact Sheet
reprints available.
Please Call 1-800-458-2700
to order.
Ahold
Computer Associates
Deutsche Telekom
Equity Office Properties
Intel Corporation
Nokia
Novartis Corporation

AHO
CA
DT
EOP
INTC
NOK
NVS

(available in September)

AUGUST 2002 RESEARCH