THINK ABOUT IT. With the sting of the Enron debacle

and the questionable accounting practices at firms like

WorldCom and Xerox still fresh, it seems the best way to

play today’s market is to find companies whose manage-

ments are honest and ethical. But in this challenging econ-

omy, you also need to find companies that can generate

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, there’s 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 opportu-

nities 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.

• Strategy: Integrating long-term eco-

nomic, environmental and social aspects

in their business strategies.

• Innovation: Investing in product and

service innovation that focuses on technologies and sys-

tems, which use financial, natural and social resources in

an efficient, effective and economic manner over the

long-term.

• Governance: Setting the highest standards of corporate

governance, including management quality and responsi-

industry SPOTLIGHT

Doing Well By Doing Good

B Y B E R N A D E T T E B A N K E R

RESEARCH AUGUST 2002

WITH MARKET DECLINES AND CORPORATE SCANDALS,

WEARY INVESTORS ARE LOOKING FOR COMPANIES THAT

ARE FINANCIALLY AND SOCIALLY SUSTAINABLE.

bility, organizational capability and

corporate culture.

• Shareholders: Meeting share-

holders' demands for sound finan-

cial returns, long-term economic

growth, long-term productivity

increases, sharpened global competi-

tiveness, superior intellectual capital

and reputation.

• Employees and other stakeholders:

Encouraging long lasting social well

being in communities where compa-

nies operate, engaging in an active dia-

log with different stakeholders (e.g.

clients, suppliers, employees, govern-

ment, local communities and NGOs)

and responding to their specific and

evolving needs, thereby securing supe-

rior customer and employee loyalty.

Telecom

More and more high-profile compa-

nies 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 devel-

opment that was formulated at the

1992 Earth Summit in Rio de Janeiro,

which argued that companies should

weigh the factors of economic prosper-

ity, social justice and environmental

protection equally.

On the economic and environ-

mental fronts, Deutsche Telekom is

looking to ways to protect the envi-

ronment and cut costs at the same

time. The firm is also stressing com-

munication and cooperation as key

elements in its policy to act responsi-

bly 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 fur-

ther increase in earnings before inter-

est, taxes, depreciation and amortiza-

tion throughout this year.

Deutsche Telekom isn’t the only

globally recognized telecommunica-

tions company that is a participant in

the index. Nokia (NOK), the world’s

largest mobile phone maker, is also

making great strides in its efforts to

find the point where a good invest-

ment meets a good company. Nokia

officials say that they recognize the

corporation’s role in “developing tech-

nological solutions that support sus-

tainable development ecologically,

economically and socially.”

The company works on environ-

mental projects with the World

Wildlife Fund and has a global part-

nership with International Youth

Foundation that focuses on educa-

tion. 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 turn-

around 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 people’s faces. One of

the company’s biggest efforts is “The

Smile Train,” an international chil-

dren'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 recog-

nized organization dedicated to resolv-

ing cases of child abduction, molesta-

tion and sexual exploitation. Today,

through donations of management

technologies from Computer

Associates, NCMEC is able to capital-

ize 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 mem-

ber. “We thoroughly enjoy working

with the folks at NCMEC in the U.S.

and around the world, and are delight-

ed to be providing solutions and ser-

vices that make a critical difference in

so many lives.”

Many long-term investors are smil-

ing at Computer Associates. Despite a

tough market for software, the compa-

ny recently achieved quarterly operat-

ing breakeven earlier than anticipated

INDUSTRY SPOTLIGHT: BE RN AD E TTE BA N KE R

AUGUST 2002 RESEARCH

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.

Intel’s Gadkari thinks that participa-

tion 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 inau-

gural index and have been ever since,

culminating with our recognition as

Sector Leader for 2002.”

He says that the semiconductor

giant’s 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 cor-

rect. Researchers at DePaul University

found that the financial performance

of companies on Business Ethics maga-

zine'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 down-

turn in sales, Intel is still delivering

earnings for shareholders. First-quar-

ter net income was $936 million, up 86

percent sequentially and up 93 percent

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., Pfizer’s chairman

and chief executive officer, the purpose

of the world's largest and fastest-grow-

ing 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. delega-

tion 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 pre-

venting 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 success-

ful 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 per-

cent to $.37. Not bad for a health care

company whose industry is being hit

hard by investors.

Another major health-care compa-

ny that is doing what it can to help

combat illness around the world is

Swiss-based Novartis (NVS). The com-

pany is the brains behind Diovan/Co-

Diovan, which treats hypertension,

Neoral/Sandimmun, an immunosup-

pressant agent used in transplantations

and Lamisil, an antifungal agent. These

are some of the drugs that have driven

the company’s stock up nearly 20 per-

cent over the past year.

The company is delivering on its

products. In the first quarter of 2002,

Novartis’ group sales were up 13 per-

cent in local currencies. Its pharma-

ceuticals 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 invest-

ing in innovation and growth resulted

in the continued dynamic perfor-

mance,” 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 AD E TTE BA N KE R

RESEARCH AUGUST 2002

INDUSTRY SPOTLIGHT: BE RN AD 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 coun-

tries. 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 disad-

vantaged patients and to launch new ini-

tiatives for their benefit,”Vasella said.

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 busi-

ness as one of helping people buy

homes. The company’s mission is to

provide affordable housing and home-

ownership 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 deliv-

ered on the promise it made on March

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.”

Food & Beverage

Ahold’s corporate social responsibility

drives both its profile and its profits.

Because the company’s consumer-dri-

ven businesses demand high quality

and consistent foods, services and cus-

tomer 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 earn-

ings growth for the past six years.

“We have been committed to corpo-

rate 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-continen-

tal 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 economical-

ly disadvantaged neighborhoods previ-

ously lacking a full-service supermar-

ket, while participating in neighbor-

hood groups and local government to

improve the overall environment.

“It’s good for business, and it’s good

for the local economy, creating mutually-

beneficial economic advances with lasting

community improvements,”Dausch says.

With Ahold’s impressive string of

six years of double-digit earnings

growth in a row, sustainability is also

good for investors. RRRR

The following clients included in the Dow JonesSustainabilty Index havefree Investor Fact Sheet

reprints available. Please Call 1-800-458-2700

to order.

Ahold AHOComputer Associates CADeutsche Telekom DTEquity Office Properties EOPIntel Corporation INTCNokia NOKNovartis Corporation NVS(available in September)

AUGUST 2002 RESEARCH