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.