Abstract
This paper examines whether mutual fund managers incorporate environmental, social, and governance (ESG) factors when deciding which sector to invest on behalf of their trustees. In doing this, the top 20 South African mutual fund companies (asset managers) listed on the Johannesburg Stock Exchange (JSE) were selected. The paper identified the top 30 JSE listed companies (in the large industrial, equipment, and machinery sectors, excluding unlisted and service-oriented companies) where trustees’ funds were invested (with a total of 28 companies between 2007 and 2017) from the mutual fund companies’ Equity Fund Fact Sheets 2017 (representing recent investment focus). ESG data were collected from the integrated and sustainability reports at the sampled companies’ websites, and financial data were sourced from the IRESS database. This study adopted the panel data analysis. The results show an insignificant negative relationship between the ESG proxies (water usage, employee health and safety cost [number of work-related fatalities], percentage of women on corporate board) and return on equity (ROE). This means that the sampled companies disregard the United Nations Principle of Responsible Investment (UN PRI) guideline, suggesting that asset managers focus on increasing returns on shareholders’ investment without considering ESG issues. The paper concludes that the disregard for responsible investment guidelines does not encourage companies to improve their unsustainable business practices.
Highlights
In the face of the current global business climate, non-adherence to responsible investment practices could pose risks of both reputational damage and consumer backlash, thereby exposing businesses to disruptions and spiraling costs
This study examined whether South African mutual fund companies considered selected ESG factors in investment decisions and the effect of the selected factors on financial performance
This study found that in making investment decisions, the selected mutual fund companies did not consider ESG factors
Summary
In the face of the current global business climate, non-adherence to responsible investment practices could pose risks of both reputational damage and consumer backlash, thereby exposing businesses to disruptions and spiraling costs. The study a stock of over 350 different companies listed on by Kijewska (2016) supported the use of operating the JSE, the sample was narrowed to only the seprofit margin, asset turnover, financial leverage, lected 28 manufacturing companies where mutual and tax ratios as significant determinants of ROE. This study examines the relationship ed unlisted companies for lack of data availabilbetween environmental sustainability (water us- ity and service-oriented companies because they age), social sustainability This safety cost) and governance issues (the percentage study used annual, integrated, and sustainability of women on corporate boards), and the finan- reports by companies from the top 30 listed JSE cial performance of selected JSE listed compa- companies where South African mutual funds nies; which mutual fund managers have invested (investment fund managers) invest trustees’ funds.
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