Conformance and Non Conformance of Asset Managers to the Environment, Social and Governance Pressures

Abstract

This thesis focuses on a central behavioral paradox in the asset management community, by questioning the dominant assumptions made in the sustainable investment field. To investigate why some asset managers use ESG information and others not to engage in sustainable investment, the grounded theory approach was employed to build theory from the ground up. It draws on asset manager interviews, archival documents, expert and practitioner consultations and feedback during 2007 and mid-2011. To reflect the global nature of sustainability, global equity asset managers were selected from thirteen institutions in three lead markets with most geographically diversified sustainable investment, UK, the Netherlands and Belgium. Drawing from insights and perspectives from the practitioners, a grounded theory model of asset manager conformance and non-conformance highlights a pivotal concept of sensemaking capacities. It reveals a counter intuitive pattern of asset manager learning. Non-conforming asset managers have developed a distinctive capacity to integrate sustainability and investment return concerns regardless of public pressures to do so. Their behavioral integration of sustainability and return generation is so highly developed, that adding the ESG information in their investment strategy would actually impair their capacity to make sense of sustainability. In absence of such behavioral integration and sensemaking capacities, conforming managers failed to sustain consistency or suffered from under-funding. To stay competitive, the latter managers have fervently demonstrated the ESG information use in their investment strategies. However, such explicit demonstration of leadership has not been accompanied by distinctive sensemaking capacities. It was non-conforming asset manager teams that have sustained consistent returns and increased client assets throughout the financial crisis.The most important theoretical contribution is identification of non-conformance variables to engage intrinsically in sustainable investment. Empirical evidence on non-conformers, corroborated with resource-based view of the firm, also enhances the understanding of non-conformers’ motivation to sustain competitive advantage. Findings also lead to managerial and policy implications. The EU Commission needs to reexamine if the current policy measures lead to further symbolic demonstrations of ESG usage without accompanying sustainable behavior at the cost of real economy. Reporting burdens may inadvertently impair non-conforming managers’ capacities to sustain long-term performance and may induce a contradictory policy consequence of increased public distrust.