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The ‘New Conditionality’ of Socially Responsible Investing Strategies: The Politics of Equity Financing in Emerging Markets

2007; Taylor & Francis; Volume: 12; Issue: 4 Linguagem: Inglês

10.1080/13563460701661512

1469-9923

Susanne Soederberg,

State Capitalism and Financial Governance

Click to increase image sizeClick to decrease image size Notes 1. International Finance Corporation, 'Emerging Markets Heading for Banner Year in 2006: IFC Notes Progress, Development Challenges Ahead', 2005, http://www.ifc.org/ifcext/home.nsf/Content/Emerging_Mkts_2006 (accessed 14 December 2005), p. 3. 2. FDI refers to investment of foreign assets in domestic structures, equipment and organisations. Unlike equity financing, FDI is believed to be more stable and therefore beneficial, given the relative difficulty it has to move out of a host country at the first sign of financial or political trouble. See Leslie Elliot Armijo, 'Mixed Blessing: Expectations about Foreign Capital Flows and Democracy in Emerging Markets', in Leslie Elliot Armijo (ed.), Financial Globalization and Democracy in Emerging Markets (Macmillan, 1999), pp. 17–50. 3. Equity finance now plays a larger role in emerging markets than net debt flows from official multilateral creditors, such as the IMF and World Bank. World Bank, Global Development Report 2005: Mobilizing Finance and Managing Vulnerability, 2005, http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTDECPROSPECTS/EXTGDF/EXTGDF2005/0,contentMDK:20341503∼menuPK:544389∼pagePK:64167689∼piPK:64167673∼theSitePK:544381,00.html (accessed on 4 January 2006). 4. Mekong Private Sector Development Facility (MPDF), 'Expanding Horizons: Equity Finance in Vietnam', International Finance Corporation, 18 August 2004, http://www.mpdf.org (accessed 2 January 2006). 5. This figure is based on 2007 market value. CalPERS, 'Facts at a Glance', 6 January 2007, http://www.calpers.ca.gov/index.jsp?bc = /investments/assets/mvs.xml (accessed 4 June 2007). 6. Although SRI is a contested term, one of its more standard definitions refers to 'an investment approach which, in addition to conventional financial criteria, evaluates and selects companies based on social and ethical criteria such as legal compliance, employment practices, human rights, consumer issues, contribution to the community, and environmental issues, while seeking stable returns'. Massahiko Kawamura, 'How Socially Responsible Investment (SRI) Could Redefine Corporate Excellence in the 21st Century', NLI Research Institute, working paper no. 160, 2002, p. 14. 7. See, for example, Tessa Hebb & Darivz Wojcik, 'Global Standards and Emerging Markets: The Institutional-Investment Value Chain and the CalPERS Investment Strategy', Environment and Planning A, Vol. 27 No. 10 (2005), pp. 1955–74. 8. Kathryn Lavelle's work on equity financing in the emerging markets is an exception to this rule. See her comprehensive book, The Politics of Equity Financing in Emerging Markets (Oxford University Press, 2004). See also Armijo (ed.), Financial Globalization and Democracy in Emerging Markets, and Mary Ann Haley, Freedom and Finance: Democratization and Institutional Investors in Developing Countries (Palgrave, 2001). This article complements this research in that it seeks to understand the contradictions and power relations rooted in equity financing by paying close attention to the role played by the social construction of knowledge by institutional investors based in the global North. 9. See Gilbert Rist, The History of Development: From Western Origins to Global Faith (Zed Books, 2002). 10. Joseph E. Stiglitz, Globalization and its Discontents (W.W. Norton, 2002). 11. 'CalPERS adds to emerging markets list', Benefits Canada, 20 April 2005. 12. See Caroline Thomas, Global Governance, Human Security and Development (Pluto Press, 2000). 13. Paul Cammack, 'What the World Bank Means by Poverty Reduction, and Why it Matters', New Political Economy, Vol. 9, No. 2 (2004), pp. 189–212; Heloise Weber, 'The "New Economy" and Social Risk: Banking on the Poor?', Review of International Political Economy, Vol. 11, No. 2 (2004), pp. 356–86. 14. James Wolfensohn, 'A Proposal for a Comprehensive Development Framework', memorandum to the Board, Management, and Staff of the World Bank Group, Washington, DC, 21 January 1999. 15. Marcus Taylor, 'Responding to Neoliberalism in Crisis: Discipline and Empowerment in the World Bank's New Development Agenda', Review of Political Economy, Vol. 21, No. 1 (2004), pp. 3–30. 16. Dia Da Costa & Philip McMichael, 'The Poverty of the Global Order', paper prepared for the International Studies Association Conference, San Diego, 23 March 2006. 17. Da Costa & McMichael, 'The Poverty of the Global Order', p. 3. 18. The East Asian debacle vindicated the critics of the so-called development state model, which did not follow the neoliberal-led growth model championed by the Washington consensus, due to a deep mistrust by the ruling classes in the forces of the free market. See, for example, Kanishka Jayasuriya & Andrew Rosser, 'Economic Orthodoxy and the East Asian Crisis', Third World Quarterly, Vol. 22, No. 3 (2001), pp. 381–96. For a critique of the dominant ahistorical understanding of the development state model, see Martin Hart-Landsberg, The Rush to Development Economic Change and Political Struggle in South Korea (Monthly Review Press, 1993). 19. Broadly speaking, rent-seeking is a form of business behaviour that occurs when actors seek to gain additional returns from government intervention in the market, particularly via quotas, tariffs and public monopolies. Jane Hutchinson, 'Crisis and Change in the Philippines', in Gary Rodan, Kevin Hewison & Richard Robinson (eds), The Political Economy of South-East Asia: Conflicts, Crises, and Change (Oxford University Press, 2001), pp. 42–70. 20. See, for example, Robert Wade & Frank Veneroso, 'The Asian Crisis: The High Debt Model Versus the Wall Street–Treasury–IMF Complex', New Left Review, No. 228 (1998), http://www.newleftreview.net/IssueI224.asp?Article = 01 (accessed on 2 March 2005); Susanne Soederberg, The Politics of the New International Financial Architecture: Reimposing Neoliberalism in the Global South (Zed Books, 2004), especially ch. 5; and Mark T. Berger, The Battle for Asia: From Decolonization to Globalization (Routledge, 2004). 21. Stijn Claessens & Joseph P. H. Fan, 'Corporate Governance in Asia: A Survey', in Thomas Clarke (ed), Corporate Governance: Critical Perspectives on Business and Management. Volume IV: Asian Corporate Governance (Routledge, 2005), p. 6. 22. Cf. Lavelle, The Politics of Equity Financing. 23. The 12 standards were identified by a key institutional feature of the NIFA, the Financial Stability Forum. See http://www.fsforum.org/home/home.html and Soederberg, The Politics of the New International Financial Architecture, ch. 3. 24. Soederberg, The Politics of the New International Financial Architecture, ch. 5. 25. The Conference Board, 'US Institutional Investors Continue to Boost Ownership of US Corporations', press release, January 2007, www.conference-board.org/utilities/pressDetail.cfm?press_ID = 3046 (accessed 4 February 2007). 26. See, for example, Stephen Gill & David Law, 'Global Hegemony and the Structural Power of Capital', in Stephen Gill (ed.), Gramsci, Historical Materialism and International Relations (Cambridge University Press, 1993), pp. 93–124. 27. International Finance Corporation, 'Emerging Markets Heading for Banner Year in 2006'. For an historical overview of the role of the IFC in the Third World see Kathryn Lavelle, 'The International Financial Corporation and the Emerging Markets Funds Industry', Third World Quarterly, Vol. 21, No. 2 (2000), pp. 193–213. 28. International Finance Corporation, 'Emerging Markets Heading for Banner Year in 2006'. 29. Many neoliberal sympathisers consider the think tank to be one of the most important in terms of development issues. For a list of its accolades, see the ILD website at http://www.ild.org.pe/eng/contenido.htm. 30. Hernando de Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000), p. 5. 31. Ibid., ch. 3. 32. World Bank, World Development Report 2005 – A Better Investment Climate for Everyone (Oxford University Press, 2004), p. 2. 33. See International Finance Corporation's Policy on Social and Environmental Sustainability, 30 April 2006, http://www.ifc.org/ifcext/enviro.nsf/AttachmentsByTitle/pol_SocEnvSustainability2006/$FILE/SustainabilityPolicy.pdf (accessed 3 May 2006). 34. Emad Mekay, 'World Bank's New Social Standards Slippery to Enforce', Choike.org – a portal on Southern civil societies, 22 February 2006, www.choike.org/nuevo_eng/informes/4003.html (accessed 3 March 2006). 35. The inclination to incorporate SRI discourse in good governance is also found in the George W. Bush administration's Millennium Challenge Account (MCA). See Susanne Soederberg, Global Governance in Question: Empire, Class, and the New Common Sense in Managing North–South Relations (Pluto Press, 2006), ch. 5. 36. The Conference Board, 'U.S. Institutional Investors Continue to Boost Ownership of U.S. Corporations', press release, January 2007, www.conference-board.org/utilities/pressDetail.cfm?press_ID = 3046 (accessed 3 February 2007). 37. Carolyn K. Brancato, Institutional Investors and Corporate Governance: Best Practices for Increasing Corporate Value (Irwin, 1997). 38. Ferdinand A. Gul & Judy S. L. Tsui, 'Introduction and Overview', in Ferdinand A. Gul & Judy S. L. Tsui (eds), The Governance of East Asian Corporations (Palgrave, 2004), pp. 1–26. 39. Confidential interviews at CalPERS, 2 May 2005. 40. CalPERS, 'Corporate Governance and Core Principles and Guidelines: The United States', 6 April 2005, www.calpers-governance.org/principles/domestic/us/page01.asp (accessed 26 May 2005). 41. Soederberg, The Politics of the New International Financial Architecture. 42. Darryl Reed, 'Corporate Governance Reforms in Developing Countries', in Darryl Reed & Sanjoy Mukherjee (eds), Corporate Governance, Economic Reforms and Development: The Indian Experience (Oxford University Press, 2004), p. 10. 43. Thomas Clarke, 'Haemorrhaging Tigers: The Power of International Financial Markets and the Weaknesses of Asian Modes of Corporate Governance', Corporate Governance: An International Review, Vol. 8, No. 2 (2000), pp. 101–16. 44. Hutchinson, 'Crisis and Change in the Philippines'. 45. Cf. Lavelle, The Politics of Equity Financing. 46. Clarke, 'Haemorrhaging Tigers'. 47. Ibid., p. 11. 48. See, for example, World Bank, Global Development Finance 2000. 49. Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', prepared for the California Public Employees' Retirement System, April 2005. 50. Wilshire Consulting, 'Exposure Draft – Permissible Equity Markets Investment Analysis', prepared for the California Public Employees' Retirement System, January 2006. 51. Ibid. 52. Confidential interview with representatives from the Treasury Department of California, 6 May 2005. 53. Confidential e-mail exchange with a Senior Associate at Wilshire, 21 June 2005. 54. The sub-factors of political stability are defined by Wilshire in the following manner: Civil Liberties, Independent Judiciary and Legal Protection, and Political Risk. Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire, 2005, p. 6. 55. For more information regarding the methodology employed in calculating 'freedom scores', see 'Methodology' at Freedom's website http://www.freedomhouse.org/template.cfm?page = 35&year = 2005. 56. To view the methodology employed by the PRS Group with regard to 'political risk', see their website at http://www.prsgroup.com/commonhtml/methods.html. 57. Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire, 2005, p. 6. 58. Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire, 2005, pp. 6–7. 59. 'Research Services', Verité, http://www.verite.org/research/main.html. For more detailed information regarding the methodology and findings of Verité, see 'Emerging Markets Research Project: Year-End Report. Prepared for California Employees' Retirement System, December 2004, http://www.calpers.ca.gov/eip-docs/investments/assets/equities/international/permissible/calpers-verite-final-report-2004.pdf (accessed 15 February 2005). 60. 'US pension fund quits Asian countries', BBC World News, 21 February 2002, http://news.bbc.co.uk/1/hi/business/1833674.stm (accessed on 6 February 2004). 61. Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire, 2005, p. 7. 62. The eight core conventions include: '(1) freedom of association and the protection of the right to organize convention, (2) right to organize and collective bargaining convention, (3) forced labour convention, (4) abolition of forced labour convention, (5) discrimination (employment and occupation) convention, (6) equal remuneration convention, (7) minimum age convention, and (8) worst forms of child labour convention'. For more information see the ILO's website: www.ilo.org. 63. 'Quality of Enabling Legislation: Countries shall be evaluated on whether laws exist that explicitly protect the right described in the ILO Convention, or portions of it, or whether laws exist that explicitly prohibit the Convention right, or portions of it. The objective is to evaluate fundamentally, how well the right described in the convention is protected by the law.' Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire 2005, p. 8. 64. 'Institutional Capacity: The governmental administrative bodies with enforcement responsibility for enforcing labour law that exists at the national, regional and local level', Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire, 2005, p. 8. 65. Ibid. 66. William Greider, 'The New Colossus', The Nation, 28 February 2005, http://www.thenation.com/doc/20050228/greider (accessed on 14 April 2006). 67. Although the majority of CalPERS' assets are invested on a long-term basis in US publicly traded corporations, in 2005, the fund held US$3.9 billion in assets in emerging markets. See 'CalPERS adds to emerging markets list', Benefits Canada, 20 April 2005. 68. 'CalPERS Flips and Flops in Philippines – Again', Bloomberg News, 22 April 2004. 69. Robin Blackburn, Banking on Death or Investing in Life: The History and Future of Pensions (Verso, 2002), p. 517. 70. 'US pension fund quits Asian countries', BBC World News, 21 February 2002, http://news.bbc.co.uk/1/hi/business/1833674.stm (accessed on 14 November 2005); Kawamura, 'How Socially Responsible Investment (SRI) Could Redefine Corporate Excellence'. 71. Blackburn, Banking on Death or Investing in Life. 72. Wilshire Consulting, 'Permissible Equity Markets Investment Analysis', Wilshire, 2005, p. 15. 73. N. Edwards, 'Pragmatism Rules in Asia's Ethical Investing Debate', Association for Sustainable and Responsible Investment in Asia, 21 February 2002, http://www.asria.org/pro/news&events/ethical_investing_debate.htm (accessed on 15 July 2005). 74. 'CalPERS: Enron Deals a Mistake', Wall Street Journal, 18 July 2002. 75. Although the broader universe of assets under professional management (that is, non-SRI assets) are substantially greater than their SRI counterparts (US$24.4 trillion as of 2005), over the 1995–2005 period, SRI assets rose more than 258 per cent, whereas non-SRI assets increased by 249 per cent over the same time line. Social Investment Forum, '2003 Report on Socially Responsible Investing Trends in the United States', Social Investment Forum (SIF) Industry Research Programme, December 2003, http://www.socialinvest.org/areas/research/trends/sri_trends_report_2003.pdf, and Social Investment Forum, '2005 Report on Socially Responsible Investing Trends in the United States', Social Investment Forum Industry Research Programme, January 2006, http://www.socialinvest.org/areas/research/trends/sri_trends_report_2005.pdf (accessed 2 February 2006). 76. Edwards, 'Pragmatism Rules'. 77. Robert A. G. Monks & Nell Minow, Corporate Governance, 2nd edn (Blackwell, 2001), p. 128. 78. 'CalPERS Flips and Flops'. 79. Ibid. 80. For more information, see Clean Clothes Campaign, www.cleanclothes.org. 81. 'Labor Code review to include informal sector', The Philippine Government website, 26 May 2005, www.gov.ph/news/default.asp?i = 9734 (accessed 3 June 2007). 82. Jane Hutchison, 'Crisis and Change in the Philippines', in Garry Rodan, Kevin Hewison & Richard Robison (eds), The Political Economy of South-East Asia: Conflicts, Crises, and Change (Oxford University Press, 2001), pp. 42–70. 83. Tim Shorrock, 'CalPERS and Carlyle', The Nation, 1 April 2002, www.thenation.com/docprint.mhtml?i = 20020401&s = shorrock2 (accessed on 1 March 2007). 84. 'CalPERS Ok's Selective Stock Purchases in China – Other Countries Excluded from Equity Investments', CalPERS Press Release, 18 December 2006, www.calpers.ca.gov/index.jsp?bc = /about/press/pr-2006/dec/stock-purchase-china.xml (accessed on 2 April 2007). 85. Ibid. 86. For a critical perspective on the possibility of forming a partnership between trade unions and global solidarity and justice movements see Peter Waterman & Jill Timms, 'Trade Union Internationalism and A Global Civil Society in the Making', in Mary Kaldor, Helmut Anheier & Marlies Glasius (eds), Global Civil Society 2004/5 (Sage, 2004), pp. 178–202; and Peter Waterman, 'Developing a Social Movement Triangle', comments from the International Colloquium on Anti-Globalism, Amsab/Institute of Social History, Gent, Belgium, (September 2005), http://www.choike.org/nuevo_eng/informes/3245.html (accessed 14 May 2006).