Responsible investing in South Africa: Drivers, barriers and enablers

S Viviers,E V.D.M Smit,J K Bosch,D De Jongh,A Buijs,N S Eccles

doi:10.4102/sajbm.v39i4.570

S Viviers, E V.D.M Smit + Show 4 more

Open Access

https://doi.org/10.4102/sajbm.v39i4.570

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Abstract

Given growing interest in the phenomenon of responsible investing (RI) in South Africa, this study set out to identify and empirically evaluate the most pertinent drivers, barriers and enablers of RI locally. Telephone interviews were conducted with a sample of pension funds, asset managers and advisory service providers during 2007. All three groups of respondents viewed fiduciary responsibility as one of the most important barriers to RI in South Africa. More legislation/regulation and evidence for increased risk-adjusted returns from local RIs were identified as key drivers of RI in South Africa, whereas the two most important enablers were seen as mainstream RI benchmarks and co-operative initiatives.

Highlights

“There are three steps in the revelation of any truth: in the first it is ridiculed; in the second, resisted; in the third it is considered self-evident.”
Many investors still question the rationale and effectiveness of such an investment strategy, empirical evidence shows that responsible investment (RI) in developed economies is gradually moving from a fringe investment strategy to a mainstream consideration (Knoll, 2002: 681; Schueth, 2003: 189)
What were the overall trends in terms of the barriers to RI in South Africa? Firstly, all three groups viewed fiduciary responsibility as a critical barrier to RI in South Africa

Summary

Introduction

“There are three steps in the revelation of any truth: in the first it is ridiculed; in the second, resisted; in the third it is considered self-evident.” This statement by German philosopher Arthur Schopenhauer (1788-1860) is apt in the light of increasing calls from a new generation of investors, socalled responsible investors, to integrate environmental, social and corporate governance (ESG) considerations into investment decisions and ownership practices. A report by the US Social Investment Forum for example shows that $2.29 trillion or nearly one out of every ten dollars under professional management in the United States of America (USA) was invested on the basis of ethical or ESG criteria in 2005 (Mitchell & Larson, 2006: 2) This statistic represents a 260 percent increase in RI in the USA over a ten year period. No evidence of improved risklegislation/regulation adjusted returns of RI portfolios

A lack of demand for RI options

Short-termism

Findings

Conclusions and recommendations