The prospect for developing an implementation framework for sustainable business models in South African investment management for environmental, social, and governance investment strategies

Abstract

Sustainability is one of the critical factors for organisations wanting to achieve long-term business success. Greater social awareness and deteriorating social and environmental conditions have resulted in a significant increase in the demand for socially responsible investments. Socially responsible or sustainable investments consider environmental, social, and governance (ESG) factors in the portfolio composition, integrating financial returns and positive societal impact into the performance metrics. South Africa was an early global leader in responsible investing but seemed to have lost momentum. Existing research suggests that many business model innovations are unsuccessful but fails to provide a comprehensive understanding of the challenges that investment management organisations face when adopting more sustainable business models and the factors that would improve the success. The study's objective was to explore how investment management organisations in South Africa move from traditional business models to more sustainable business models to accommodate new socially responsible investment strategies. The study adopted a qualitative, exploratory research method to understand the challenges faced. A total of 31 semi-structured interviews were conducted with South African investment professionals, sustainability professionals, and relevant ESG service providers. The critical challenges highlighted were: 1. A lack of understanding and awareness; 2. Challenges related to data and reporting; 3. Resources constraints; 4. A lack of collaboration; 5. Leadership challenges; 6. Adoption of a short-term view; and 7. A limited investable universe inhibits the holistic application of ESG investment strategies, with the areas identified for change identified as 1. Improved education and awareness; 2. Strategic intent and alignment; 3. Holistic integration; 4. Leadership; 5. Cognitive diversity; 6. Standardisation; 7. Culture and mindset; and 8. Collaboration and strategic partnerships, and finally, the tools and strategic enablers identified include 1. Education; 2. Leadership; 3. Culture, mindset, and an enabling environment; 4. Experienced ESG resources; 5. Strategic partnerships and collaboration; 6. Stewardship, engagement, and activism; Data and technology; and Key Performance Indicators (KPIs) and scorecards. This study aimed to address the research gap. The findings of this study contribute to the extant literature related to sustainable business model innovation and socially responsible investing.