Shareholder engagement in emerging markets: institutional and organisational determinants in Brazil and South Africa

This PhD research analyses the institutional and organisational determinants of shareholder engagement on environmental, social and corporate governance (ESG) issues in Brazil and South Africa. Using an institutional framework, this study investigates the institutional incentives and barriers faced by domestic investors when engaging with companies on ESG issues. It also identifies which types of investors are more likely to engage. The key research question of this PhD study was investigated using a combination of qualitative and quantitative methods. Statistical analysis was used to identify which types of investors are more likely to engage, and the results were explored in semi-structured interviews. The institutional influences on shareholder engagement in these countries were also explored through semi-structured interviews. The research findings demonstrate that the engagement strategies most commonly employed by South African investors are individual meetings with companies to address ESG issues, while Brazilian investors mainly use collaborative engagement and appointment of investor representatives onto Boards of Directors of investee companies. As for the determinants of engagement in these countries, legislation and the influence of investor associations are driving local investors to engage with companies both directly and indirectly. Moreover, the influence of the legal and self-regulatory guidelines is encouraging pension funds to question asset managers about their RI practices and, to a lesser extent, to outsource engagement activities. This is because, since most pension funds in Brazil and South Africa are small and lack financial resources, staff and investment knowledge, they are shifting the RI responsibilities imposed on them by mandatory and voluntary regulations to service providers. In terms of investor characteristics, the statistical data and the interviews show that larger investors and asset managers are more likely to engage with investee companies than smaller investors and pension funds. This is largely because smaller investors and pension funds have insufficient resources available to them, pension fund trustees lack investment understanding, and the potential for smaller investors to influence companies is limited. In addition, active investors are more likely to engage than passive investors as they are motivated by their goal to outperform the market as well as the remuneration incentives available to active managers. Furthermore, passive investors are unable to divest from companies. By studying the determinants of shareholder engagement in the emerging markets, this study offers academic and practical contributions. Academically, the study contributes to the literature on shareholder engagement, and particularly on emerging markets where the level of RI and engagement activities is increasing, but on which limited literature is available. Furthermore, the research shows that the institutional frameworks in place in Brazil and South Africa are likely to bring further growth for the practice of RI and shareholder engagement. As practical contributions, the identification of the most common engagement strategies employed and of the determinants of engagement will help investors to develop more effective engagement strategies and will help public and non-governmental organisations develop policies to foster engagement

Determinants of shareholder activism in emerging markets

The present study aims at investigating the determinants of shareholder activism in emerging markets based on Institutional Theory, Resource-Based View and Austrian economics. This dissertation, which is part of the researcher‟s doctoral project, reviews the literature on the topic and describes the methodological approach that will be adopted in the PhD research. This topic was chosen because the literature demonstrates that there is a gap in research on shareholder activism in emerging markets, besides a lack of a systematic analysis of the institutions that influence activism. In addition, no study was found that adopts Resource-Based View or Austrian economics to explain the use of shareholder activism as a source of active entrepreneurial choice. Drawing on the literature, the researcher developed a set of hypotheses concerning the factors that promote or inhibit shareholder activism. These will be tested through quantitative and qualitative methods. Firstly, statistical analysis will be employed to test the relationship between institutional influences and shareholder activism in the emerging market countries. Secondly, through case study research, a number of institutional investors will be interviewed so as to examine to what extent shareholder activism is motivated by strategic decision making. iv This research will have both academic and practical benefits. Academically, this research will develop the literature regarding shareholder activism in emerging markets. It will also benefit institutionalists, RVB academics and Austrian economists as these theories prove to be effective in explaining shareholder activism. Practically, it will help investors to design global shareholder activism strategies by identifying the factors that enhance or curb activism in emerging markets

Institutional determinants of private shareholder engagement in Brazil and South Africa: the role of regulation

Manuscript type: Empirical Research Question/Issue: This study investigates to what extent regulation encourages private shareholder engagement attitudes and behaviour (including behind-the-scenes consultations, letters, meetings and ongoing dialogues) of pension funds and asset managers with listed investee companies on environmental, social and corporate governance (ESG) issues in Brazil and South Africa. Research Findings/Insights: Drawing on 44 in-depth semi-structured interviews with pension fund representatives, asset managers and other investment players, the findings suggest that legislation provides limited direct encouragement to private engagement behaviour. However, legislation encourages attitudes towards Responsible Investment by enhancing investor understanding of Responsible Investment, increasing the interest of pension funds and asset consultants in the Responsible Investment practices of asset managers, and reducing the fear of pension funds to violate their fiduciary duties, thereby promoting an enabling environment for ESG engagement. Theoretical/Academic Implications: This article adds to the literature on comparative corporate governance and shareholder engagement. To the best of our knowledge, this is first study that specifically analyses how regulation affects private shareholder engagement behaviour in emerging markets, providing empirical support for the institutional perspective. The findings also suggest that the sophistication of the legislation on ESG issues in Brazil and South Africa is more typical of developed countries, indicating the need for a more fine-grained analysis of emerging markets in corporate governance studies. Practitioner/Policy Implications: This study draws investors’ attention to the importance of understanding the national legal environment of the companies with which they engage and offers insights to governments interested in fostering ESG engagement practices

The institutional and social construction of responsible investment

This paper provides a summary of the symposium on the institutional and social construction of Responsible Investment (RI), held at the 22nd IABS Conference. In the context of the symposium, we propose to move beyond the dominant focus on the financial impact of RI to consider the potential of emergent institutional and sociological perspectives to explain the practices and concepts related to RI. In doing so, our aim is to explore in greater detail the current changes in the RI infrastructure and the impact of these changes on wider issues of corporate sustainability and social responsibility

Brazil

The World Guide to CSR provides comparable national profiles that describe the evolution and practice of CSR for 58 countries and 5 global regions