How does the form that a business or investment vehicle takes affect the likelihood and effectiveness of it pursuing and achieving responsible investment goals?
Last week the Johannesburg Stock Exchange (JSE) held a discussion on trends in responsible investment. The JSE is acknowledged as a world leader in developing listing and reporting requirements that in principle promote better achievement on (or at least attention to) non-financial performance (social impact, carbon footprint, and so on).*
Ostensibly, the publicly-listed company (especially in a bourse like the JSE) is the vehicle most susceptible to formal regulation and reputational harm and most likely to pursue a responsible investment agenda. In a previous post on 'The Public Company as Public Good' I questioned whether onerous listing and reporting requirements might drive commercial people to choose alternative business vehicles and ventures that are harder to scrutinise.
However, it can't be assumed that unlisted firms are less effective at or prone to responsible or impact investment choices (any more than it can be assumed that state-owned firms are more susceptible to regulation on such things).
At work we've done a study on the growing interest of non-traditional investors ('High Net Worth Individuals' and 'Family Offices') in African growth opportunities. Such (by definition unlisted) investors are usually highly mobile and opportunistic. With such investors there is often a far greater interest in explicitly pursuing, alongside decent returns, worthy social agendas. The highly private investor may be very interested in a legacy of public good through their investment choices, and have far greater direct control of their vehicle than the CEO of a listed company.
Of course, at the opposite end of worthy publicly-listed firms are the ultimate private enterprise -- organised crime. The point to ponder is whether enough research has been done (alongside all the business school research on what drives pursuit of sustainability within corporate governance practice, and the relationship between corporate responsibility and financial performance), on how the form of incorporation of a business shapes its capacity to pursue a responsible investment agenda.
Jo
* The notion of stock exchanges are regulators of public interest goals is fairly well covered in the literature. For a primer, see Hall and Biersteker (eds) The Emergence of Private Authority in Global Governance (Cambridge, 2002). My very first post talked of the regulatory pluralism and its potential.
My previous post hinted at the idea that, taken on their own, reporting requirements may serve to distort strategic planning and implementation on responsible business issues -- in the same way that, in my experience of working in an international development agency, consciousness of reporting cycles sometimes obscured attention to achieving objectives, even if it also disciplined us towards those objectives too.
You raise interesting questions, Jo. There are a number of reasons why a public listing is associated with socially responsible investment (SRI). For your purposes it is important to identify which of them represent a casual relationship – as distinct from those which represent merely a correlation. For example, the argument can be made that SR investments and public listings are activities which companies engage in only later in their growth cycles. If this is true then, in this regard, there is a natural correlation (but not causality) between SRI and listing.
ReplyDeleteBy distinction the fact that listings create public exposure and scrutiny may cause companies to engage in SRI. Where the market cares about SRI then market forces reward it. At the JSE we try to amplify this effect. Special publicity is given to the most socially responsible listed companies by including them in the JSE’s SRI index. We have also listed a BGreen ETF which attracts investment into the “greenest” companies on the exchange.*
You refer to listings requirements that promote non-financial performance. Whether listings requirements should mandate a certain level of social responsibility is debatable topic. I would oppose such prescriptions. I prefer a softer approach that helps market forces to encourage SRI.
The same arguments apply to affirmative action policies (in South Africa it is called “Black Economic Empowerment”). Should listed companies be forced to have a certain proportion of non-white employees and shareholders? Or should we just help market forces to reward diversity/representation?
Nice article. With COP18 approaching, I’m sure this topic is ripe for you to explore further. I will be exploring similar topics in the public domain over the next few months and would welcome your engagement: @m_egner
*My views do not necessarily represent those of the JSE. My personal opinions have been expressed.