Institutional Determinants of Private Shareholder Engagement in Brazil and South Africa: The Role of Regulation

Manuscript type. Empirical. Research Question/Issue. This study investigates to what extent regulation encourages private shareholder engagement attitudes and behavior (including behind‐the‐scenes consultations, letters, meetings, and ongoing dialogues) of pension funds and asset managers with listed investee companies on environmental, social, and corporate governance (ESG) issues in Brazil and South Africa. Research Findings/Insights. Drawing on 44 in‐depth semi‐structured interviews with pension fund representatives, asset managers, and other investment players, the findings suggest that legislation provides limited direct encouragement to private engagement behavior. However, legislation encourages attitudes toward Responsible Investment by enhancing investor understanding of Responsible Investment, increasing the interest of pension funds and asset consultants in the Responsible Investment practices of asset managers, and reducing the fear of pension funds to violate their fiduciary duties, thereby promoting an enabling environment for ESG engagement. Theoretical/Academic Implications. This article adds to the literature on comparative corporate governance and shareholder engagement. To the best of our knowledge, this is first study that specifically analyzes how regulation affects private shareholder engagement behavior in emerging markets, providing empirical support for the institutional perspective. The findings also suggest that the sophistication of the legislation on ESG issues in Brazil and South Africa is more typical of developed countries, indicating the need for a more fine‐grained analysis of emerging markets in corporate governance studies. Practitioner/Policy Implications. This study draws investors' attention to the importance of understanding the national legal environment of the companies with which they engage and offers insights to governments interested in fostering ESG engagement practices.