About the Author(s)


Kara Nel Email symbol
Department of Business Management, Faculty of Economic and Management Sciences, Stellenbosch University, Stellenbosch, South Africa

Pierre D. Erasmus symbol
Department of Business Management, Faculty of Economic and Management Sciences, Stellenbosch University, Stellenbosch, South Africa

Nadia Mans-Kemp symbol
Department of Business Management, Faculty of Economic and Management Sciences, Stellenbosch University, Stellenbosch, South Africa

Citation


Nel, K., Erasmus, P.D., & Mans-Kemp, N. (2025). Perceptions of asset managers on corporate social responsibility challenges and opportunities. South African Journal of Business Management, 56(1), a4549. https://doi.org/10.4102/sajbm.v56i1.4549

Note: The manuscript is a contribution to the themed collection titled ‘Corporate Governance and Sustainable Business Practices in the Fourth Industrial Revolution’, under the expert guidance of guest editors Prof. Nicolene Wesson and Dr. George Frederick Nel.

Original Research

Perceptions of asset managers on corporate social responsibility challenges and opportunities

Kara Nel, Pierre D. Erasmus, Nadia Mans-Kemp

Received: 28 Feb. 2024; Accepted: 28 Nov. 2024; Published: 22 Jan. 2025

Copyright: © 2025. The Author(s). Licensee: AOSIS.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Purpose: Companies and investors in South Africa are challenged with multiple sustainability concerns. Asset managers have substantial power to motivate investee companies to focus on pressing corporate social responsibility (CSR) issues. Yet, there is limited scholarly evidence on how they process CSR information and which sustainability considerations influence their decisions. Therefore, the CSR challenges and opportunities that selected South African asset managers experience were explored.

Design/methodology/approach: Semi-structured interviews were conducted with 26 South African asset managers. Thematic analysis was conducted to derive four main themes.

Findings/results: Four considerations were identified on which the considered asset managers based their responsible investment decisions when reflecting on CSR practices. Firstly, CSR should form part of a company’s primary purpose. Secondly, the interviewees focussed on material industry-specific CSR risks when making investment decisions. Thirdly, the inclusion of CSR practices in asset managers’ decision-making was hindered by the relatively small South African investable market, a limited demand for responsible investments from asset owners and beneficiaries, and insufficient disclosure of material sustainability information. Lastly, the interviewees highlighted social and economic infrastructure investment opportunities. Furthermore, they mentioned that CSR practices can be improved by refined regulation and educating asset owners and beneficiaries.

Practical implications: Corporate leaders are urged to increasingly engage with asset managers and collaborate with stakeholders from the private sector to address prominent sustainability issues and to capitalise on related opportunities.

Originality/value: This research contributes four considerations to the limited body of knowledge on the unique CSR challenges and opportunities pertaining to the investment decisions of an influential stakeholder group, namely asset managers in South Africa.

Keywords: CSR; asset managers; investment challenges; investment opportunities; qualitative research; South Africa; sustainability; responsible investment.

Introduction

Socio-economic problems remain prevalent in developing countries (Fagbemi, 2021). Several companies are thus increasing their investments in corporate social responsibility (CSR) initiatives to meet stakeholders’ divergent needs. Several institutional investors are also progressively focussing on social and environmental matters (Adams & Abhayawansa, 2022).

As such, responsible investment funds globally increased by 150% since January 2021 and reached $2.5 trillion at the end of 2022 (Morningstar, 2022). Investors engage in responsible investment by integrating financial and non-financial factors, including CSR practices into their financial analysis and investment decision-making (Erhemjamts & Huang, 2019). By definition, CSR incorporates society’s economic, legal, ethical and discretionary expectations of organisations at a certain point in time (Carroll, 1979).

Institutional investors oversee the majority of the financial capital inflows in global markets (Dyck et al., 2019). Despite the noteworthy increase in responsible investments globally, many institutional investors do not consider sustainability concerns when making their investment decisions or they only focus on selected sustainability considerations (Gloßner, 2019).

Asset managers are the agents who manage the day-to-day investment activities of asset owners and undertake to manage the assets under their control in the best interests of their beneficiaries (Sandberg, 2016). The asset managers’ specific mandates may differ depending on, inter alia, the asset owners’ objectives, values, return goals and risk tolerance. As asset managers can substantially influence the policies and practices of investee companies, they arguably have a responsibility to monitor and enforce sound sustainability practices (Chen et al., 2020; Dyck et al., 2019).

By reflecting on asset managers’ perceptions of sustainability practices, researchers can obtain a better understanding of the related complexities (Cohen & Simnett, 2015). Hoepner and Schopohl (2020) suggested that institutional investment decisions should be explored to analyse the extent to which asset managers incorporate CSR practices. However, there is limited scholarly evidence about how asset managers process CSR information and which sustainability considerations influence their responsible investment decisions (Phang & Hoang, 2021). Their potential impact on CSR practices thus warrants further investigation.

Moreover, asset managers in emerging and developing countries experience vastly different socio-economic issues and institutional contexts than their counterparts in developed countries (Ali et al., 2017). The prevalence of unemployment and poverty, inequality and deficiencies in healthcare and education are pressing concerns in several African countries, including South Africa (Fagbemi, 2021). It is thus essential that researchers should identify the drivers of CSR in their specific contexts (Nasrullah & Rahim, 2014; Park & Jang, 2021).

South African institutional investors show a growing interest in responsible investment practices (Ernst & Young, 2017). As such, South Africa, along with Brazil are the two emerging countries globally with the most Principles for Responsible Investment (PRI) signatories (PRI, 2022a). Although responsible investment is encouraged in South Africa through regulation, such as King IV and the Code for Responsible Investing in South Africa (CRISA) as well as amended Regulation 28 of the Pension Funds Act (No. 24 of 1956), the country is still suffering from severe sustainability issues (The World Bank, 2023). In this context, this research was conducted to explore the CSR perceptions of selected South African asset managers. Four research objectives were formulated: Firstly, to explore the views of selected South African asset managers on the CSR concept; secondly, to identify the considerations that play a key role in their responsible investment decisions; thirdly, to identify the challenges that hinder South African asset managers to integrate CSR practices into responsible investment decisions; and lastly, to identify opportunities to integrate CSR practices into their responsible investment decisions in South Africa.

The research objectives were addressed by conducting semi-structured interviews with 26 South African asset managers. Insights obtained from the interviewees about the complexities involved in their investment decision-making led to the identification of four considerations on which the selected asset managers based their investment decisions when reflecting on CSR practices.

Firstly, CSR should form part of the primary purpose of an investee company. Secondly, asset managers should focus on material CSR risks, including gender discrimination and an unsafe work environment when making investment decisions. Thirdly, the aspects that hinder the inclusion of CSR practices in asset managers’ investment decisions include the relatively small South African investable market, a low demand from asset owners and beneficiaries for responsible investment and non-disclosure of material sustainability matters by companies. Lastly, several opportunities to enhance CSR practices in South Africa were recognised by the participants, namely social and economic infrastructure investment opportunities, refined regulation to enhance guidance to incorporate CSR practices in investment products, educating asset owners and beneficiaries to improve CSR practices in the investment context and the importance of collaboration and engagement between various stakeholders to enhance responsible investment in South Africa. Hence, this study contributes to the limited body of knowledge on strategic CSR by identifying four considerations on the unique CSR challenges and opportunities pertaining to responsible investment decisions made by selected asset managers in an emerging market.

In the remainder of this article, an overview of the theoretical perspectives on institutional investor decision-making is provided, followed by an explanation of the ways in which asset managers can account for CSR practices in their investment decisions. Thereafter, the research design is explained and the findings of the thematic analysis are discussed. Lastly, the conclusions and recommendations to address the identified challenges that hinder the integration of CSR practices into responsible investment decisions are outlined.

Theoretical perspectives

The stakeholder theory outlines the notion that companies have an obligation towards their stakeholders, which include all the individuals or groups who are affected by the realisation of an organisation’s purpose or those without whose support the organisation would not exist (Freeman, et al., 2010). Freeman (1984) claimed that the main goal of CSR is to create value for stakeholders, including customers, employees, suppliers, financiers and communities. In the context of the stakeholder theory, asset managers should not merely prioritise financial considerations but should also consider the long-term effects of creating value for several stakeholders when making investment decisions. This view is of particular importance as asset managers invest on behalf of others (Sandberg, 2016).

Furthermore, asset managers can be regarded as stewards because they pursue collective benefit by investing on behalf of others and do not necessarily act in a self-interested way (Sandberg, 2016). Stewardship can be defined as the use of influence by asset managers ‘to maximise overall long-term value including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend’ (PRI, 2022b). In turn, the agency theory suggests that the preferences of asset managers are homogeneous and are connected with a sole demand for financial returns instead of also accounting for environmental and social concerns, which may be at the expense of the beneficiaries’ interests (Velte, 2023). The stewardship theory thus provides an alternative view on the motivations of asset managers and suggests that they focus on the collective goals of the asset owners and beneficiaries (Davis et al., 1997; Donaldson & Davis, 1991).

The stewardship theory is also applicable to the context of CSR decisions made at investee companies as corporate managers increasingly aim to satisfy diverse stakeholders’ needs to enhance corporate success (Gulzar et al., 2019). Furthermore, the stewardship theory supports the inclusion of CSR practices in the investment decision-making process. In turn, shared value can be created for the investee company and its stakeholders (Gulzar et al., 2019). Asset managers can accordingly act as ‘stewards of society’ by encouraging investee companies to balance the interests of various stakeholders (Klettner, 2021, p. 933).

Velte (2023) confirmed that institutional ownership has a positive influence on corporate sustainability based on CSR performance and reporting. Furthermore, as companies increasingly invest in CSR practices, asset managers are taking note of CSR considerations to demonstrate responsible investment behaviour (Nofsinger et al., 2019).

Corporate social responsibility practices and responsible investment

In this section, the link between CSR and responsible investment is explored first followed by an overview of applicable regulatory developments.

Incorporating corporate social responsibility in investment decisions

As mentioned in the introduction, the term CSR broadly relates to society’s economic, legal, ethical and discretionary expectations of organisations at a given point in time (Carroll, 1979). Freeman (1984) viewed CSR as the role of the corporation in society. Companies should accordingly pursue sustainability-related goals in addition to profit maximisation. Furthermore, stakeholders should hold corporate leaders responsible for their actions.

Based on a systematic literature review, Nel et al. (2023) argued that CSR in the investment context asserts that companies assume their core economic responsibilities, while engaging in ethical actions that extend beyond compliance that focus on their impact on stakeholders, society and the environment, while simultaneously contributing to global sustainability. From these definitions, it is evident that the CSR concept consists of different dimensions. Although previous researchers disagreed on which dimensions should be included when defining and measuring the CSR concept, most researchers concurred that economic, social and environmental dimensions form part of the CSR concept (Dahlsrud, 2008; Elkington, 1998; Nel et al., 2023).

While CSR involves creating value by embracing opportunities and accounting for risks related to social and environmental considerations, the environmental, social and governance (ESG) acronym also incorporates governance matters (Rasche et al., 2023). The ESG framework is therefore deemed a useful categorisation scheme as it is often used by organisations and investors to distinguish between prominent sustainability issues (Rasche et al., 2023.

The Global Reporting Initiative (GRI, 2024) aims to enhance transparency on the ways in which companies communicate and demonstrate their impact on the economy, environment and people. These contributions are divided into universal, sector and topic standards (GRI, 2024). Furthermore, the 17 United Nations Sustainable Development Goals (UN SDGs) were developed to create a universal framework for CSR to address sustainability issues such as poverty, inequality and environmental conservation (UN, 2019). Companies can accordingly engage in strategic CSR, which describes the integration of CSR practices into the companies’ core business strategies to address the SDGs (Lu & Abeysekera, 2021). These authors found that strategic CSR disclosure is value relevant to investors. Accordingly, the SDGs provide an integrated framework to asset managers for CSR engagement (Schönherr et al., 2017). Asset managers could thus address sustainability issues through responsible investment endeavours (Erhemjamts & Huang, 2019).

Responsible investing integrates long-term ESG criteria into investment decisions and therefore combines non-financial objectives with financial objectives. The investors’ objectives and their attention to ESG criteria depend on and vary by asset class; however, the motivation to invest sustainably is often to improve returns and lower risk, whereas some investors additionally contribute to sustainable development. Impact investing refers to investments that are made with the intention to generate positive, measurable social and environmental impact alongside a financial return (Barber et al., 2019).

Figure 1 outlines the actions and decisions of various role players in the institutional investment process. As shown in Figure 1, beneficiaries make contributions to asset owners, typically to invest for their retirement. Asset owners then appoint asset managers, who invest on their behalf in investee companies. Ideally, asset owners should account for financial returns and CSR considerations and share such information with beneficiaries. Likewise, asset owners typically require asset managers to report on financial and CSR outcomes of the investee companies. The asset managers also engage with the investee companies and exercise their voting rights to promote sustainable corporate practices. Ideally, the boards of directors of investee companies should adopt sustainable practices and communicate with the asset managers through an integrated and/or sustainability report (Schoenmaker & Schramade, 2019). Consequently, as shown in Figure 1, asset managers have substantial power to motivate investee companies to focus on pressing CSR issues through constructive dialogue as well as through exercising their voting rights (Dyck et al., 2019).

FIGURE 1: Institutional investment process.

There are several reasons why institutional investors engage in responsible investment and why they consider CSR practices in their investment decision-making. They could, inter alia, reduce risk and uncertainty in their investment decisions. In contrast, poor CSR engagement might lead to lawsuits and fines (Barnett et al., 2018). Moreover, research shows that beneficiaries’ demand for sustainability is gaining prominence. As a result, some global mutual funds, which are not explicitly listed as responsible investments, tend to invest with a social impact in mind because their investors demand a sustainable development agenda (Choy et al., 2023).

Yet, some asset managers only consider sustainability information if it is deemed financially material (Amel-Zadeh & Serafeim, 2018). The term ‘materiality’ in this context refers to sustainability issues that have a measurable effect on the financial performance of a company (International Integrated Reporting Council, 2015; refer to paragraph 17 and 18 of International Financial Reporting Standards [IFRS] S1, 2023). Impact materiality refers to the company actions that affect the environment and people throughout its value chain. As different industries deem different sustainability concerns as material, the Sustainability Accounting Standards Board has developed industry standards to highlight material sustainability concerns from an investor’s viewpoint (IFRS Foundation, 2022; refer to paragraph 55[a] of IFRS S1, 2023). For example, environmental concerns are deemed more material in the Basic Materials industry than in the Financials industry. However, opaque materiality mapping is a challenge to institutional investors when they integrate sustainability concerns into their investment decisions, as several companies’ transparency and complete disclosures of material concerns remain questionable (Fan et al., 2022).

Further challenges in the CSR context include greenwashing, which can lead to negative market reactions (Du, 2015). Greenwashing occurs when companies’ CSR claims about social and environmental issues have not been supported by actual corporate activities (Cohen & Simnett, 2015; Phang & Hoang, 2021). Poor corporate transparency in relation to these companies’ contributions towards environmental and social issues is another challenge to investors (García-Sánchez et al., 2023). Responsible investing could thus be challenging, as investors require a unique combination of financial, social, environmental and capital structure skillsets to navigate such investment decisions (Ormiston et al., 2015).

Several researchers found that a company’s CSR activities have a positive influence on institutional investment decisions. Cox and Wicks (2011) reported a significant positive association between selected United Kingdom (UK) companies’ CSR performance and institutional investors’ demand for these companies’ shares. Arslan et al. (2021) indicated that foreign institutional investors are motivated by CSR activities and intend to invest more in companies with thorough CSR reporting. Atkins (2015) similarly found that institutional investors in South Africa required decision-useful information rather than generic disclosures on ESG metrics. Moreover, institutional investors in the United States (US) have significant preferences for companies with high ESG scores (Lopez-de-Silanes et al., 2024).

Based on an analysis of questionnaires, company reports, corporate websites, regulatory notifications and newspaper articles, Ahmed et al. (2014) concluded that institutional investment decisions in Bangladesh were not influenced by CSR activities. However, Petersen and Vredenburg (2009) concluded from interviews with selected institutional investors in Canada that although they were not willing to pay a premium for shares of companies that engaged in CSR practices, they did favour holding shares in such companies. Responsible investment decisions have a low impact on bond prices. Tang et al. (2020) analysed an international green bond dataset and even though they documented that stock prices positively responded to the issuance of green bonds, they did not find a significant premium for green bonds. Zerbib (2019) similarly found that investors that prefer to invest sustainably induce a negative yield premium. However, both studies concluded that a lower yield should not be a disincentive to keep on investing in sustainability products, as a firm’s issuance of green bonds is beneficial to its existing shareholders.

Selected authors furthermore investigated the challenges that institutional investors experience to invest in a responsible manner. Ivanova (2017) found that the main challenges that UK-based asset managers encountered included a lack of transparency among investee companies, a low client demand (asset owners) for engagement in sustainability issues and internal conflicts of interest. Reference was made to instances where the responsible investment team expressed interest in engaging on a specific topic, but this was met with disagreement from the equities department or a lack of support from senior management.

Eccles et al. (2017) conducted a global study among 582 institutional investors and found that the biggest barrier is the lack of quality data on material ESG performance factors. Investee companies were criticised for their insufficient reporting on ESG performance.

Gloßner (2019) confirmed that the relationship between institutional investors and CSR is complex. Although CSR could benefit institutional investors, they might not per se be interested in all CSR practices. Institutional investors in the US, for instance, prefer CSR practices that could reduce environmental or social concerns, rather than to increase their CSR strengths (Gloßner, 2019).

Researchers are thus encouraged to conduct country-specific research to explore the influence CSR preferences has on institutional investment decisions (Nasrullah & Rahim, 2014; Park & Jang, 2021). Given the dynamic relationship observed between institutional investors and CSR concerns in various developed countries, the current study was conducted to examine the specific CSR challenges and opportunities that play a role in the investment decisions of asset managers in a developing country, namely South Africa. The country offers a well-developed regulatory framework to institutional investors to address a range of pressing socio-economic concerns.

Regulatory developments linking sustainability to investment processes

It could be difficult to integrate sustainability concerns into company evaluations when a systematic approach is not followed. Therefore, institutional investors’ interest in CSR and other sustainability considerations is accompanied by continuous developments in regulatory frameworks to incorporate sustainability factors in institutional investment processes (Nofsinger et al., 2019). Several global and country-specific codes, reports, policies and regulations are in place to encourage responsible investment and sustainability disclosure (Table 1).

TABLE 1: Prominent institutions and guidelines.

As reflected in Table 1, the South African government and other institutions have derived legislations and guidelines such as amended Regulation 28 of the Pension Funds Act, King IV and CRISA to address sustainability issues in the country. Country-specific considerations, such as economic development, legislation and culture play a role to describe the CSR activities that companies are typically involved with (Cai et al., 2016). Following the end of the apartheid era, the government developed the Employment Equity Act (No. 55 of 1998) and the Broad-Based Black Economic Empowerment (B-BBEE) Act (No. 53 of 2013) to bring about transitional justice (Yamahaki & Frynas, 2016). Since then, several institutional investors have financed B-BBEE projects (Mersham & Skinner, 2016). Institutional investors in the country are also increasingly investing in socio-economic infrastructure, as these investments are supported by government through the amended Regulation 28. This regulation seeks, inter alia, to direct increased pension fund capital to address unemployment, inequality and poverty (National Treasury, 2022). The history of South Africa thus suggests that the decisions made by institutional investors can have significant social and environmental implications for a range of stakeholders.

Research design and methodology

Semi-structured interviews were conducted with selected asset managers based in South Africa to explore their perceptions of CSR. The focus of this study was on the perceptions and investment decision-making of asset managers, as they are responsible for the investment analysis, activities and returns of institutional investment funds. Asset managers thus have decision-making power regarding responsible investment activities.

A combination of non-probability purposive and snowball sampling was conducted as contacts in the Financials industry assisted with making initial contact with potential interviewees. The primary researcher also contacted selected South African asset management companies to invite their representatives to participate in the interviews. Access was obtained via their email addresses provided in the asset management companies’ annual reports and on their websites. Furthermore, the participants were requested to share the purpose of the study with other potential participants and to encourage them to contact the primary researcher to participate in the interviews.

Before commencing with the interviews, the participants were requested to sign an informed consent form, and to complete questions in an MS Word document pertaining to their job title, experience as an asset manager and their assets under management (AUM). Based on the literature review, the interview guide included open-ended questions regarding the participants’ CSR-related perceptions and investment decisions. The guide also contained questions on CSR measurement, legislation and envisioned future practices and policies. Examples of questions in the interview guide include:

  • Can you tell me what CSR means to you?
  • Can you describe the role that your perception of CSR plays in your investment decision-making?
  • Tell me about the CSR practices that you take into consideration when you make investment decisions on behalf of your clients.
  • How do you integrate CSR practices into your investment decision-making processes?

A total of 26 virtual interviews were conducted with participants who were associated with 21 South African asset management companies between September 2022 and January 2024 (Table 2). Data saturation was reached as no new insights were gained or themes emerged from the last few interviews. In comparative studies, data saturation was reached after conducting 25 interviews (Ivanova, 2017; Yamahaki & Fynas, 2016). The average duration of the interviews was 47 min.

TABLE 2: An overview of the interviewees and their companies.

The majority of the participants were senior investment decision-makers. Nine (35%) of the asset management companies were classified as large according to their AUM (Table 2). The asset managers mostly invested in shares and bonds, but some also indicated that their companies invested in derivatives, hedge funds and options. The minority of the interviewees invested in alternative funds, unit trusts and multi-asset funds. Eighty-one per cent of the considered companies were signatories to the UN PRI.

The transcribed interview data were analysed by conducting thematic analysis in the ATLAS.ti version 22 software program. Pre-existing concepts were used to identify thematic categories. However, as the coding took place, new codes were also inductively developed. The thematic analysis was conducted according to Braun and Clarke’s (2006) approach. The primary researcher repeatedly read the transcriptions to obtain a thorough understanding of the qualitative data. Thereafter, preliminary codes were developed and relevant data were accumulated for each code. Next, potential themes and sub-themes were identified from the initial codes to address the four research objectives. The preliminary themes that were developed were rechecked by the primary researcher to confirm whether they accurately described the coded notions. The themes and sub-themes where then finalised and named. Finally, conclusions were formulated based on the collected primary data.

Based on the recursive process, four main themes and three sub-themes were derived. Lincoln and Guba’s (1985) criteria for trustworthiness were applied. A recognised research method was used to collect and analyse the qualitative primary data, which were described in detail to enhance credibility and dependability. The findings were discussed with the participants where applicable to ensure that their opinions were accurately presented. The primary researcher furthermore kept notes of the interviews, transcriptions, coding decisions and amendments to the coding process to enhance confirmability. Furthermore, the primary researcher cautioned against personal bias to ensure that the derived themes accurately presented the participants’ views.

This study explored the investment behaviour of selected asset managers in South Africa and, as a result, the findings are not transferable to other settings. However, details were provided on the participants’ backgrounds and the adopted research process that make provision for comparisons between different settings, especially pertaining to other emerging markets. Thematic analytical validity was addressed by the inclusion of data extracts to support the derived themes.

An application for ethical approval was made to the Social, Behavioural and Education Research Ethics Committee of Stellenbosch University and ethics consent was received on 10 June 2022. The ethics approval number is 24 473. Written informed consent was obtained from all the participants involved in the study. The participants were assured that their responses will remain confidential.

Findings

Four main themes were identified. The first theme was that CSR should be integrated into the DNA of an investee company. By implication, CSR practices should be part of a company’s purpose and core strategy similar to DNA that refers to hereditary material in humans. The second theme was that asset managers focussed on material CSR concerns linked to SDGs. The main challenges that hinder the integration of CSR practices into responsible investment decisions emerged as the third theme; and the fourth theme comprised of several opportunities to integrate CSR practices in the investment decision-making process.

Corporate social responsibility should be integrated into the DNA of an investee company

This theme addresses the first research objective, namely to explore the views of selected South African asset managers on the CSR concept. Interviewee X explained that the only way to determine whether a company is sustainable is to ‘ultimately determine the DNA of that organisation and that is something that’s very difficult to do’. Three sub-themes emerged, including that considered asset managers believed that CSR practices should form part of the purpose of a company. Furthermore, they held the view that top leadership ultimately determined the sustainability outcomes of their companies, including CSR policies and practices. They also acknowledged that asset managers and their investee companies had a joint responsibility to implement CSR practices.

Corporate social responsibility practices should form part of the purpose of a company

The majority of the interviewees (15 of the 26 asset managers) believed that a company had a responsibility towards the community in which it conducted business. Therefore, CSR practices should be part of their purpose and core strategy. Interviewee M explained:

‘Where it most resonates is where it [CSR] is clearly integrated into the way of doing business of a company and it is seen as an enhancer to its purpose and not so much … as a necessary cost or [that] there’s a trade-off.’

It was evident that most of the interviewees did not deem investing in CSR practices as an expense. Interviewee S noted that a company that was socially responsible ‘solves a problem and has a purpose’. This view is in line with prior research that indicated that CSR practices should be integrated into a company’s core business strategy, thereby creating shared value for both the company and society (Lu & Abeysekera, 2021).

Yet, greenwashing and window dressing were encountered by seven of the considered asset managers. Phang and Hoang (2021) likewise warned that some corporate leaders might manipulate CSR information to gain investors’ trust. Nel et al. (2023) emphasised that CSR should not merely entail planned practices, but that it should reflect actual implementation. Likewise, the interviewees in this study stated that CSR policies should be visible and put into action. Interviewee U explained that:

‘[W]hen a company come and talk to me about sustainability, do not just tell me about what it is. Also tell me how you actually do it and implement it and keep telling me about how it is actually doing, what impact it is making that will be the recipe to really get us going.’

Moreover, the interviewees made it clear that the impact of CSR practices should be measurable. Some of the interviewees included measures such as gender pay gap, number of black females on a board of directors or employee wellness scores. If an investment addresses a particular goal such as education, a measure could include how many bursaries were awarded. In addition to reporting on their CSR practices in their sustainability and/or integrated reports, Interviewee B explained that investors wanted companies to ‘also measure if the desired outcomes are actually aligned to their intentions and social responsibility’. Some of the interviewees agreed that a company’s social responsibility tended to start with an awareness to be a good corporate citizen, which was then followed by responsible corporate actions.

Top leadership determines the success of sustainability endeavours

The interviewees believed that awareness regarding CSR matters should be enhanced among corporate leaders because they have the ultimate decision-making power. Interviewee L asserted: ‘Give me ten minutes with the CEO and I can tell you whether that company is serious about ESG and whether they’re serious about any corporate social responsibility’.

Interviewee X explained that it was important that the CEO of an investee company was comfortable in speaking about sustainability matters. Interviewees D and E pointed out that when they invested in a company, they were essentially ‘backing the management team’ of that company; it was therefore vital to these interviewees that the management team valued ‘doing the right thing’. These observations concur with previous research that the top leadership of a company drives CSR policy development and implementation (Senge et al., 2009).

Joint responsibility to implement corporate social responsibility policies

Many of the interviewees acknowledged that they had a joint responsibility to implement the same CSR practices in their own investment company that they valued in their investee companies. Interviewee M explained:

‘I suppose at the same time we [are] going to make sure that we set ourselves a similar kind of framework and targets because we can’t hold them [the investee companies] to account if we’re not holding ourselves to account.’

Similarly, Interviewee O remarked that:

‘So, the approach we take as well is to say whatever we expect of the companies in which we invest, we actually expect of ourselves. So, you know, we go to companies, we say we want you to have a commitment on improving gender diversity. We have that, because we can’t go and then they say, oh, you first.’

Other interviewees agreed that they could not ask challenging questions or engage with investee companies on social and environmental issues when their own company were not exhibiting similar sustainability practices. Therefore, asset managers should assess the impact of both their investee companies and their own company on the economy and society (Klettner, 2021).

Against this background, it is argued that asset managers have a joint responsibility with investee companies, in addition to the responsibilities of government, regulators and society, to ensure a properly functioning economy and, ultimately, sustainable development. Asset managers aim to satisfy diverse stakeholders’ needs and pursue collective benefit. By taking joint responsibility and making decisions that benefit society, they can adhere to the discussed stewardship (Davis et al., 1997) and stakeholder (Freeman, 1984) theories.

Focus on material corporate social responsibility risks linked to sustainable development goals

The second research objective, namely to identify the considerations that play a role in the responsible investment decisions of South African asset managers was addressed in this theme. Seventeen of the interviewees indicated that they focussed on material CSR risks when they made investment decisions. Interviewee U referred to social unrest in South Africa that was a substantial source of concern. As a result, they engaged with their investee companies on discrimination and work environment policies. This finding corresponds with Chen et al. (2020) who found that institutional investors in a global study were mostly concerned with changing negative CSR practices that could lead to lawsuits or regulatory penalties, including gender discrimination and an unsafe work environment.

Ten of the interviewees mentioned that they had used the SDG framework when evaluating environmental and social concerns. Interviewee A asserted: ‘If you go and link it to a specific SDG outcome and how you have employed your CSR spend[ing] then that for me is the gold standard’. Likewise, Interviewee D stated that their company ‘clearly look at CSR practices through the lens of the UN SDGs’. Some of the interviewees mentioned that they had used the SDG framework when implementing CSR practices and to measure the impact of their investments. Prior researchers confirmed that CSR practices are the key driver of SDG engagement (García-Sánchez et al., 2023) and that asset managers can use the SDG framework as an engagement tool (Schönherr et al., 2017).

Given that sustainability is a complex topic, seven of the interviewees suggested that companies and investors focus on prioritising a few critical CSR practices to exert a larger social and environmental impact. Interviewee M elaborated:

‘A company probably needs to say these are the three or four critical social things that we think is a priority for us, right, and that when we make [a] decision it is impacted by this kind of framework.’

Similarly, Interviewee Q pointed out that every company could not ‘tackle every single issue’. In line with Interviewee D, Interviewee Q proposed that investee companies identify which sustainability considerations they deemed most relevant in their industry and then prioritise those sustainability concerns. Smith and Huang (2023) found that Fortune 100 companies were also narrowing their CSR focus. Although these companies prioritised seven CSR practices, on average, in 2015, they decreased their focus to two CSR practices that would specifically align to their company goals by 2022.

In a similar vein, the asset managers who participated in this study concurred that they concentrated on specific sustainability concerns when making investment decisions. For example, Interviewee X explained that their asset management company followed the notion of ‘keep[ing] it simple’ by using only four sustainability pillars, including climate change, biodiversity loss, human and labour rights, and diversity and inclusion in their investment decisions. Furthermore, Interviewee F found that they had implemented three high-level CSR practices. They focus on providing equal compensation for work of equal value, healthy relationship with stakeholders and not engaging in unethical practices, such as bribery and corruption. They believed that when one implemented ‘those three things, all of the other ones actually naturally take care of themselves’.

In addition, Interviewee O mentioned that when their asset management company made investment decisions, they considered three CSR practices that would inform them ‘whether or not that business is more or less investable over time’. The three CSR practices include climate change, human and labour rights, and inequality. This interviewee added that this focussed strategy prevented asset managers from becoming overwhelmed and overloaded with information that could result in wasting time and resources.

The interviewees furthermore concentrated on material industry-specific CSR risks when making investment decisions. They explained that, although they considered different CSR concerns, their focus depended on the perceived materiality in the context of the investee companies’ industries. Interviewee G expressed the following view in this regard:

‘As an investor, it would be important, firstly, to understand the nature of the company and then to understand where would they have the most material impact through that social lens.’

Similarly, Interviewee Q explained that they focus on a company’s business operations and the risks that were material to the specific industry. It is therefore important to acknowledge that different environmental and social concerns will be deemed material in different sectors. A global survey of asset managers indicated that they only considered sustainability information that was regarded as financially material (Amel-Zadeh & Serafeim, 2018). Correspondingly, Chen et al. (2020) found that institutional investors in a global sample focussed on improving material CSR practices in their investee companies. The IFRS Standards 1 and 2 that were issued in 2023 also focus on material financial effects of sustainability matters.

Challenges that hinder the integration of corporate social responsibility practices into responsible investment decisions

The third research objective, namely to identify the challenges that hinder asset managers to integrate CSR practices into responsible investment decisions in South Africa was addressed in this theme. The interviewees cited the small investable market, a limited demand from asset owners and beneficiaries for responsible investment and insufficient disclosure of material sustainability information by some South African companies as prominent challenges.

In 2023, approximately 400 companies were listed on the JSE’s main board and AltX (JSE, 2023). The JSE is relatively small in comparison to its global counterparts. Furthermore, the already limited investable market is shrinking as companies delist from the JSE at a disconcerting rate (Miller, 2023). Seven of the interviewees commented that the South African equity market was too small to make a significant social investment impact. In Interviewee E’s words:

‘In South Africa, there’s not many listed companies where you can make a big social impact. That’s the reality. It’s not a market where it offers you a lot of opportunity to make a social impact from a listed equity perspective.’

Interviewee B also mentioned that ‘the South African investment universe is too narrow’. Although Interviewee N agreed that the South African equity market was small, their approach to concentrate on the shares of five or less companies allowed them to ‘live and breathe’ the CSR concerns of those companies. Ormiston et al. (2015) also deemed limited investment opportunities a substantial barrier for institutional investors to make a social impact.

Furthermore, the majority of the interviewed asset managers emphasised that their clients did not yet value sustainability concerns. For example, Interviewee M explained that it was not easy to ‘shift a whole mindset’ of individuals who became members of a pension fund when it was acceptable to invest in tobacco companies. Ironically, other interviewees mentioned that because some of their beneficiaries were concerned about whether they would be financially able to retire, CSR and other sustainability issues did not play a role in these beneficiaries’ investment decisions. Moreover, Interviewee C added that none of their asset owners requested a mandate focussing on a sustainability impact. Likewise, a low client (asset owner) demand for engagement on sustainability issues challenged asset managers in the UK (Ivanova, 2017). Some of the interviewees believed that the number of sustainable investment products would only increase if investors demanded such an increase. Very few interviewees stated that their clients (asset owners or beneficiaries) had asked questions related to sustainability concerns. Only one interviewee indicated that questions posed by a client prompted them to launch a sustainable investment impact fund.

Several interviewees also referred to the insufficient disclosure of sustainability information by several investee companies. Interviewee D noticed that ‘not all corporates disclose sustainability information’, whereas Interviewee S remarked that there were only ‘about 25 to 30 companies or maybe 40 companies that disclose that data. But most of the other companies don’t’. Revelli and Viviani (2015) found in their study that companies largely reported on economic information but gave limited attention to social and environmental information, given that reporting on economic information rely on accounting measures. Concerns were also raised by the interviewees pertaining to the quality, reliability and transparency of sustainability information provided by some South African companies. Ivanova (2017) likewise identified transparency as an obstacle for institutional investors in the UK to engage with investee companies on social and environmental concerns. King IV recommends integrated reporting using the six capitals combining both qualitative and quantitative data to demonstrate how an organisation creates value over time. More detailed disclosure concerning these capitals can assist asset managers to make more informed investment decisions.

Given the perceived lack of consistency in sustainability reporting, the interviewees highlighted the need to consolidate or standardise sustainability reporting. Some of the interviewees deemed the JSE sustainability disclosure guidance that was published in 2022 as a step in the right direction. The IFRS Standards 1 and 2 that were issued in 2023 also encourage more consistent, complete, comparable and verifiable information about companies’ exposure to and management of sustainability-related risks and opportunities.

Opportunities to integrate corporate social responsibility practices

The fourth research objective, namely to identify opportunities to integrate CSR practices into responsible investment decisions in South Africa, was addressed by identifying four opportunities, namely social and economic infrastructure investment, refined regulation, collaboration and engagement between different stakeholders and educating asset owners and beneficiaries.

Many of the considered asset managers were positive about responsible investment opportunities in South Africa and realised that it increased social and economic infrastructure investments are required. Interviewee P stated: ‘There is real money to be made in environmentally friendly companies and infrastructure and so I think it’s a very attractive industry’.

Some interviewees indicated that they had made more infrastructure investments since the first amendment of Regulation 28 of the Pension Funds Act was published in 2011. Lawmakers worldwide are increasing their efforts to issue legislation aimed at addressing sustainability concerns and encouraging companies to adjust their behaviour (Nofsinger et al., 2019). Interviewee M stated that it was ‘very hard for an organisation to change without legislation, without purpose’. Other asset managers also welcomed legislation in this regard. Interviewee D explained that they expected ‘continued regulatory developments which [will] probably encourage the further entrenchment’ of responsible investment decisions in South Africa. The interviewees mentioned that integrated thinking on responsible investing would ultimately be cultivated through regulation.

South Africa has various regulations and acts that guide responsible investment practices, as outlined in Table 1. Given South Africa’s substantial social issues, most of the asset managers expected and welcomed refined regulation and stricter allocation towards ESG products to validate investments that incorporate non-financial concerns. They believed that refined regulation would continue to encourage and offer guidance to institutional investors to integrate CSR practices in their investment decisions.

The interviewees further believed that sustainable development would only be achieved through collaboration between stakeholders. However, they disagreed on the preferred type of collaboration and which stakeholders should be involved. Some of the interviewees were willing to work with the government, whereas others thought that the private sector should solve the country’s sustainability concerns. Interviewee F was of the view that government and the private sector should work together to address sustainability issues: ‘Companies have got a responsibility to co-invest alongside government, because the private sector actually has the skills to allow, you know, investments made by government to flourish’.

Furthermore, a few interviewees deemed industry collaboration essential to address certain social and environmental concerns, given that many sustainability concerns are industry-specific. Previous research highlighted successful engagements on social issues in cases where investors collaborated to bring such issues to the attention of corporate leaders (Barko et al., 2021).

Interviewee O believed that collaboration should consist of much more than merely an industry partnership:

‘I think there has to be an acknowledgement of businesses to be a responsible business right now in the world that we face, in the context of these systemic issues that we face, is to acknowledge that you can only get so far by yourself. And that there’s only so much that’s within your direct circle of influence and that in order to address these issues, which present a threat to the resilience of the entire market, you are gonna have to work with your peers, your competitors, your consumers, your customers, your policymakers and regulators, and with your shareholders. And I think in order for you to create an environment in which your business can thrive, it’s about more than just what’s internally.’

Ormiston et al. (2015) likewise emphasised the importance of stakeholder collaboration to ultimately enhance responsible investment in developed markets. They found that networks and collaboration are critical to overcome the challenge of limited investment opportunities. Decisive actions by experienced stakeholders with good reputations can build credibility, demonstrate viability and improve the risk-return profile of an investment opportunity. Yamahaki (2019) found that in selected developing countries, investor associations encourage responsible investment through collaborative engagement with investee companies.

Given that the demand by asset owners and beneficiaries and their attitudes towards sustainability concerns were identified as challenges to implement CSR practices in the South African investment context (see Section 5.3), there is an evident opportunity to educate them on responsible investment. Interviewee B stated that it was important to ‘have your clients informed to be able to communicate your approach’. Interviewee X added that collaboration was needed to increase client demand for responsible investment products: ‘Client demand needs to increase, so educate the fund managers and the clients’. In addition, Interviewee U asserted that some of their asset owners and beneficiaries believed that they could not make a difference because they did not have the expertise or experience with responsible investment products. Interviewee U thus emphasised the importance of educating and supporting investors to make responsible investment decisions.

Conclusions, limitations and recommendations

As asset managers are investing on behalf of asset owners and their beneficiaries, they are entrusted to act as stewards. Furthermore, their views on specific sustainability considerations might influence their investment decision-making that could have implications for several stakeholders. Prior research furthermore indicated that unique country-specific considerations should be taken into account (Nasrullah & Rahim, 2014; Park & Jang, 2021). This research was therefore conducted to explore the perceptions of selected South African asset managers on CSR challenges and opportunities. The country offers a well-regulated institutional investment environment.

The thematic analysis revealed four considerations on which the selected asset managers based their investment decisions when reflecting on CSR practices. Firstly, CSR practices should be part of the DNA of an investee company. By implication, CSR practices should be part of a company’s purpose and core strategy. Investee companies are thus encouraged to implement strategic CSR practices.

Secondly, the considered asset managers focussed on material CSR considerations, especially industry-specific risks. By taking joint responsibility and making decisions that benefit society, asset managers are adhering to the discussed stewardship (Davis et al., 1997) and stakeholder theories (Freeman, 1984). Corporate leaders are thus urged to reflect on how they can address prominent CSR concerns by linking them to the achievement of specific UN SDGs that are most relevant in their unique contexts. Directors and managers are furthermore advised to reflect on the ways in which they are contributing to a (more) sustainable future.

Thirdly, several aspects that hinder the inclusion of CSR practices in asset managers’ responsible investment decisions were outlined, including the small investable market, a low demand for responsible investment products by asset owners and beneficiaries and the non-disclosure of material corporate sustainability information by some investee companies. Report preparers are thus encouraged to ensure concise and transparent reporting in this regard. In light of the recently released IFRS standards 1 and 2, it is likely that the different role players in the institutional investment process will be able to make more informed decisions and have more meaningful engagements on sustainability matters going forward. Asset managers can also educate asset owners and their beneficiaries on the relevance of responsible investment and accounting for sustainability matters, including CSR practices at investee companies during private and public meetings.

Fourthly, several opportunities were identified to increase the inclusion of CSR practices in investment decision-making. Opportunities that are related to social and economic infrastructure investment in the country were identified. Educating asset owners and beneficiaries on responsible investment can further improve CSR practices. The need for refined regulation to validate investments that incorporate non-financial concerns was identified. The importance of collaboration and engagements between different stakeholders to enhance responsible investment in South Africa was also recognised, including government and the private sector.

Based on the reported findings, it is recommended that the government should collaborate with the private sector to create more investment opportunities that are linked to pertinent social and environmental concerns. Moreover, asset managers are encouraged to invest in social and economic infrastructure in South Africa. Engagements between asset managers and the boards of directors of investee companies can furthermore highlight promising opportunities in this regard. Potential collaboration to address CSR matters can also be discussed during such engagements.

Future researchers can conduct interviews to explore the views of South African institutional investors and corporate leaders on the application of the amended CRISA principles, Regulation 28 and the newly released IFRS standards 1 and 2 covering material sustainability matters as well as the European Sustainability Reporting Standards and the Security and Exchange Commission’s climate-related disclosure rules. In addition, researchers can conduct interviews with various industry role players, such as directors and board committee members, to discuss the ways in which material sector-specific CSR risks can be addressed.

Furthermore, industry bodies can offer workshops and information sessions to educate beneficiaries and asset managers on different ways to account for CSR practices and other sustainability considerations. Workshops can also cover the practical application of the revised CRISA and IFRS standards 1 and 2. Such educational opportunities will enable these role players to integrate the incorporation of prominent sustainability concerns in investment decisions.

Pertaining to limitations, the findings of this study are not generalisable owing to the qualitative nature of the investigation and the unique South African context. Moreover, the purposive snowball sampling method is limiting as the sample does not necessarily reflect the population. Therefore, future research is encouraged in other emerging markets to incorporate other factors that could play a role in institutional investors’ decision-making, such as culture, politics and geographic location. Given that qualitative studies are typically characterised by small sample sizes and potential interviewer bias, a survey is proposed to measure the CSR perceptions of various role players in the institutional investment process in various emerging markets.

Acknowledgements

This article is partially based on the author’s thesis entitled ‘Corporate social responsibility perceptions: A South African institutional investor perspective’ towards the degree of Doctor of Philosophy (Business Management) in the Faculty of Economic and Management Sciences, Stellenbosch University, South Africa, submitted on 28 August 2024 with supervisors Prof P.D. Erasmus and Prof N. Mans-Kemp.

Competing interests

The authors declare that they have no financial or personal relationships that may have inappropriately influenced them in writing this article.

Authors’ contributions

K.N. conceptualised the article and prepared the draft manuscript, including the methodology and data analysis. K.N., P.D.E. and N.M.-K. edited and finalised the manuscript. P.D.E. and N.M.-K. were involved in supervision and K.N. in project administration.

Ethical considerations

Ethical approval to conduct this study was obtained from Stellenbosch University, Social, Behavioural and Education Research Ethics Committee (project no. 24473). All procedures performed in studies involving human participants were in accordance with the ethical standards of the institutional and/or national research committee. Written informed consent was obtained from all the participants involved in the study.

Funding information

The author reported that K.N. was supported by a doctoral scholarship from Stellenbosch University’s Graduate School of Economic and Management Sciences (GEM). The funder had no role in the study design, data collection and analysis, decision to publish, or preparation of the manuscript. The author has disclosed those interests fully and has implemented an approved plan for managing any potential conflicts arising from their involvement. The terms of these funding arrangements have been reviewed and approved by the affiliated University in accordance with its policy on objectivity in research.

Data availability

The data that support the findings of this study are available on request from the corresponding author, K.N. upon reasonable request. The data are not publicly available because of ethical restrictions.

Disclaimer

The views and opinions expressed in this article are those of the authors and are the product of professional research. The article does not necessarily reflect the official policy or position of any affiliated institution, funder, agency or that of the publisher. The authors are responsible for this article’s results, findings and content.

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