Connecting capital : the factors influencing the decision-making process of institutional investors towards responsible investing

Habberton, Colin Vincer (2019-04)

Thesis (PhD)--Stellenbosch University, 2019.

Thesis

ENGLISH SUMMARY : Institutional investors, as agents of other people’s money, have come to dominate investment holdings globally. Through the concentration of ownership of the assets they are mandated to manage, institutional investors have the right and power to influence decision-making in the companies in which they invest. Consequently, the decisions they make regarding investments can significantly impact the stakeholders and economies connected to these assets. Traditionally, institutional investor decision-making has been driven by the objective of maximising risk-adjusted financial return without commensurate attention given to the environmental and social impact of the investments made. The legacy of South Africa’s colonial history, coupled with the global repercussions of financial sector failures and company collapses, has generated ongoing debate and academic enquiry into the roles and responsibilities of institutional investors and their investment decision-making process. In response to the acknowledgement for greater accountability and action, more ‘responsible’ investment principles, policies and practices that consider environmental, social and governance (ESG) criteria in investment decision-making have emerged. Responsible Investing (RI) has risen to prominence since the launch of the United Nations Principles of Responsible Investment in 2006. In South Africa, since 2006, increased awareness of and participation in RI has been spurred on by changes in legislation and the development and adoption of codes of corporate governance by civil society and increasingly by the private and public sectors. Despite progress in policy and practice, research has found that barriers to the growth of RI in South Africa outweigh the drivers and enablers. In addition, there appears to be lack of commitment among South African institutional investors, with them being characterised as having a ‘passive and selective approach’ to RI. With the aim of better understanding the connection between institutional investors and the impact of their investment decisions, this study sought to identify and analyse the factors influencing the decisions, decision makers and decision-making processes of South African institutional investors towards RI. Theoretical and sector research over the period 2013 to 2018 highlighted the characteristics of the stakeholders in the institutional investment value chain in South Africa from a stakeholder perspective and the factors influencing their respective decision-making processes. Senior decision-makers from a broad representation of identified institutional investor categories were the units of analysis. Influenced by transdisciplinary and participatory action research methods, over 30 semi-structured interviews were undertaken to gather primary data for the study that were recorded, transcribed, coded and analysed. Through ongoing consultation with academic and investment professionals, the analysis of relevant theory, industry reports and empirical data, the researcher formulated and refined a conceptual framework that proposes an integrated view of the factors influencing the investment decision-making towards RI. The framework consists of stakeholders in commercial and contractual value chains influenced by social, political, ethical and legal structures, informed by a variety of information sources and metrics reported over time and ESG horizons. The conceptual framework illustrates the aspects and connections between institutional investors and the stakeholders impacted through their investment decisions. The empirical evidence points to the adoption of a more holistic, specific, stakeholder-driven view of the investment value chain to improve RI policy and practice, recommending mutual accountability to optimise stakeholder salience, improve accountability, guide engagement and promote participation in the investment decision-making process. The study contributes to the body of knowledge from descriptive, instrumental and normative perspectives aligned to stakeholder theory as well as advancements to institutional investing and responsible investing research, particularly in South Africa. The study provides a detailed conceptual framework consisting of a taxonomy of institutional investors and an integrated view of the cross-sectoral factors and detailed explanations of the phenomena observed or deduced from empirical research and relevant literature that connect institutional investors’ decision-making to the stakeholders impacted by the decisions they make. The conceptual framework offers model to assist investment decision-making and thus an instrumental tool to inspire praxis in decision-makers, especially asset owners, individual contributors and their beneficiaries, enabling deeper understanding of the factors to consider in their investment decision-making process. Against the background of stakeholder theory, the study offers stakeholder-specific recommendations to address the inertia and inconsistency in the entrenchment of RI philosophy, policy and practice prevalent among institutional investors in South Africa. Furthermore, the interpretation of the unique characteristics that South Africa presents through the lens of its political economy and the theory of the state, informed recommendations towards a more ‘collibratory’ approach to improving the adoption of RI.

AFRIKAANSE OPSOMMING : Institusionele beleggers, as agente van ander mense se geld, het beleggingsbates wêreldwyd oorheers. Deur die konsentrasie van eienaarskap van die bates wat hulle gemagtig is om te bestuur, het institusionele beleggers die reg en mag om besluitneming te beïnvloed in die maatskappye waarin hulle belê. Gevolglik kan die besluite wat hulle neem ten opsigte van beleggings die belanghebbendes en ekonomieë wat met hierdie bates verband hou, aansienlik beïnvloed. Tradisioneel is besluite oor institusionele beleggers gedryf deur die doel om die risikoaangepaste finansiële opbrengs te maksimeer sonder om die nodige aandag te skenk aan die omgewings en sosiale impak van die beleggings wat gemaak is. Die nalatenskap van Suid-Afrika se koloniale geskiedenis, tesame met die globale reperkussies van finansiële sektor mislukkings en maatskappye wat in duie stort, het voortgesette debatte en akademiese ondersoeke oor die rolle en verantwoordelikhede van institusionele beleggers en hul beleggingsbesluitneming tot gevolg. In reaksie op die erkenning vir groter verantwoordelikheid en optrede, was daar ʼn opkoms van meer ‘verantwoordelike’ beleggingsbeginsels, -beleide en -gebruike wat omgewings-, maatskaplike en bestuurskriteria (OMB-kriteria) in ag neem by besluitneming rakende beleggings. Verantwoordelike beleggings (VB) het op die voorgrond getree sedert die bekendstelling van die Verenigde Nasies se Beginsels van Verantwoordelike Belegging in 2006. In Suid-Afrika is verhoogde bewustheid van en deelname aan VB sedert 2006 aangespoor deur veranderinge in wetgewing en ontwikkeling en aanvaarding van kodes van korporatiewe bestuur. Ondanks vordering in beleid, het navorsing bevind dat struikelblokke tot die groei van VB in Suid-Afrika van groter belang is as die aandrywers en aktiveerders. Daarbenewens skyn daar ʼn gebrek aan toegewydheid aan die kant van Suid-Afrikaanse institusionele beleggers te wees. Dit word gekenmerk deur ʼn ‘passiewe en selektiewe benadering’ tot VB. Met die oog op beter begrip van die verbintenis tussen institusionele beleggers en die gevolge van hulle besluite, het hierdie navorsing probeer om die faktore wat ʼn invloed op die besluitnemingsprosesse van Suid-Afrikaanse institusionele beleggers met betrekking tot VB uitoefen, te identifiseer en te analiseer. Teoretiese en sektorale navorsing oor die tydperk 2013 tot 2018 beklemtoon die eienskappe van die belanghebbendes in die institusionele beleggingswaardeketting in Suid-Afrika vanuit 'n belanghebbende perspektief en die faktore wat hul onderskeie besluitnemingsprosesse beïnvloed. Senior besluitnemers van 'n breë verteenwoordiging van geïdentifiseerde institusionele belegger kategorieë was die eenhede wat geanaliseer is. Beïnvloed deur transdissiplinêre en deelnemende aksienavorsingsmetodes, is meer as dertig semi-gestruktureerde onderhoude onderneem om primêre data vir die studie in te samel, wat opgeneem, getransskribeer en dan gekodeer is. Deur die deurlopende konsultasie met akademiese en beleggingspersoneel, het die navorser 'n konseptuele raamwerk geformuleer en verfyn met die ontleding van relevante teorie, nywerheidsverslae en empiriese data, wat 'n geïntegreerde siening van die faktore wat die beleggingsbesluitneming teenoor RI beïnvloed, voorstel. Die raamwerk bestaan uit belanghebbers in kommersiële en kontraktuele waardekettings wat deur etiese en regstrukture deur verslagdoeningsfaktore beïnvloed en oor tyd en OMB-horisonne heen gestalte gegee word. Die konseptuele raamwerk illustreer die faktore en verbindings tussen institusionele beleggers en die belanghebbendes wat deur hul beleggingsbesluite geraak word. Die empiriese bewyse dui op die aanvaarding van 'n meer holistiese, spesifieke, belanghebbendegedrewe siening van die beleggingswaardeketting om die VB-beleid en -praktyk te verbeter. Dit beveel onderlinge aanspreeklikheid aan om die belanghebbendes te verbeter, betrokkenheid te verhoog en belanghebbendes se deelname aan die beleggingsbesluitneming te bevorder. Die studie dra by tot die kenniskorps deur ‘n beskrywende, instrumentele en normatiewe perspektief in lyn met belanghebbende teorie, asook die bevordering van institusionele belegging en verantwoordelike beleggingsnavorsing, veral in Suid-Afrika. Die studie bied 'n gedetailleerde konseptuele raamwerk wat bestaan uit 'n taksonomie van institusionele beleggers en 'n geïntegreerde siening van die sektorsfaktore en gedetailleerde verduidelikings van die verskynsels waargeneem of afgelei van empiriese navorsing en relevante literatuur wat die besluitneming van institusionele beleggers aan die belanghebbendes verbind, beïnvloed deur die besluite wat hulle neem. Die konseptuele raamwerk bied 'n model om beleggingsbesluite te help en is dus instrumenteel om besluitnemerspraktyke te inspireer, veral bate-eienaars, individuele bydraers en hul begunstigdes, beter in staat te stel in hul beleggingsbesluitnemingsproses. Teen die agtergrond van belanghebbende-teorie bied die studie normatiewe riglyne om die traagheid en inkonsekwentheid aan te spreek in die verskansing van die VB-filosofie, beleid en praktyk wat onder institusionele beleggers in Suid- Afrika voorkom. Verder het die interpretasie van die unieke karateristieke wat Suid-Afrika deur die lens van sy politieke ekonomie en die teorie van die staat bied, aanbevelings oor 'n meer 'botsende' benadering aangevoer om die aanvaarding van VB in die land te verbeter.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/105695