Integrating ESG factors in investment decisions by mutual fund managers: a case of selected Johannesburg Stock Exchange-listed companies

  • Received October 22, 2020;
    Accepted November 24, 2020;
    Published December 7, 2020
  • Author(s)
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  • Article Info
    Volume 17 2020, Issue #4, pp. 258-270
  • Cited by
    2 articles

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This work is licensed under a Creative Commons Attribution 4.0 International License

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.

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    • Table 1. Descriptive statistics of study variables
    • Table 2. Regression analysis results
    • Table 3. Shapiro-Wilk W test for normality
    • Table 4. Multicollinearity test
    • Table 5. Random-effects model
    • Table 6. Hausman test results
    • Conceptualization
      Michael Bamidele Fakoya, Segopotje Evonia Malatji
    • Data curation
      Michael Bamidele Fakoya, Segopotje Evonia Malatji
    • Formal Analysis
      Michael Bamidele Fakoya, Segopotje Evonia Malatji
    • Methodology
      Michael Bamidele Fakoya
    • Project administration
      Michael Bamidele Fakoya
    • Validation
      Michael Bamidele Fakoya
    • Writing – review & editing
      Michael Bamidele Fakoya
    • Investigation
      Segopotje Evonia Malatji
    • Writing – original draft
      Segopotje Evonia Malatji