It is of great interest to investors how to best assess the profitability, sustainability, and related risks of potential investments. Their answers, understandably, vary due to available budget, size and diversity of investments, and a range of other considerations. In the case of asset managers with a mandate to enhance the sustainability of their portfolios, for example, ESG benchmarks and additional desk research will most likely guide their decisions as to which investments to include and exclude, while private equity investors will only opt for a yes – or a no! – after extensive due diligence.

Following from this, assessments of the broader field in which investments operate also tend to vary. The extent to which various risks and opportunities of global supply chains are included, for example, depends on the approach, mandate and budget in question, although there may also be differences in economic predictions and risk assessments of issues specific to a particular sector, such as how buyer and supplier markets could develop. For instance, investors in agricultural land, on which I have conducted extensive research, will include knowledge about weather patterns, expectations about global commodity prices, and to a lesser extent the impact of government regulation. Some issues generally receive less attention in the assessments, however, including:

  1. Expectations, obligations and experiences of various actors directly and indirectly involved, and the ways in which these affect investments.
  2. Genuine dialogue with these actors regarding their expectations, etc. throughout investment cycles, in order to strengthen the sustainability of investments – this issue has also been nicely highlighted in the article ‘How sustainability efforts fall apart’, which was recently published in the Harvard Business Review.

In short, more attention needs to be devoted to the social field in which investments operate, comprising customers, suppliers, employees, management, smallholder farmers, civil servants, etc.; the ‘broader ecosystem of customers, partners, and stakeholders …’, as the HBR article defines it. Without this, important knowledge about profitability, sustainability and risks of investments may be missed, while the possibility of gaining support – and limiting opposition investments may face over time – is also not sufficiently explored. To obtain relevant insights into these matters, however, additional tools need to be considered, such as anthropological engagement with the range of actors/stakeholders relevant to an investment. This allows us to unearth the variety of expectations, obligations, etc. of these actors, and how these may inform investment cycles.

How to exactly include such an approach next to, for example, benchmarks will evidently differ from investor to investor. In this piece, I discuss the relevance of anthropological insights with two kinds of investors in mind: on the one side, investors directly involved in the daily operations of investments, for example as main shareholders or as private equity investors; and on the other side, asset managers that operate at a distance, yet due a long-term strategy have a tendency to engage with their portfolio investments/companies, such as insurance companies or pension funds.

Drawing from my research on large-scale agricultural investments in sub-Saharan Africa, which I discuss, among other topics, in the scientific paper ‘Multi-scalar moral economy: Global agribusiness, rural Zambian residents, and the distributed crowd’, the business case for considering the ‘ecosystem’ of actors involved, regarding both their expectations, etc. and a willingness to engage with them and their concerns, can be argued as follows:

  • To obtain relevant knowledge about the impact of the social field in which investments operate by means of assessing actors/stakeholders’ decision frameworks, e.g. what they expect from an investment and why, and how they may respond to certain developments. Through better assessing and predicting how societal aspects may affect their investments, accordingly, investors can minimise unexpected costs. The focus here should not only be on how concerns of employees and local residents living around agriculture investments, production plants, etc. affect their interactions with these investments, but also on the impact that normative opinions of actors without any direct involvement may have. Out of concern for the position of local residents and employees, for example, NGOs, politicians, journalists, scholars, and so forth may publicly criticise investments – from afar. Of course, there is attention devoted to these issues, such as in the case of reputational risks, yet often this is characterised by relatively little engagement with the exact expectations, obligations, opinions, etc. of the respective actors.
  • To strengthen mutual acceptance and mitigate social conflicts that could negatively affect investments through open engagement with a variety of voices directly from the first phases of an investment cycle. This may again avoid unexpected costs, while it also increases the impact of investments. It does not imply, however, that all expectations need to be honoured, nor that all potential concerns should be deliberated. Yet honest interactions may create openings to allocate part of the responsibility to actors directly affected. Instead of, for example, a CSR budget controlled by the investor/corporation, a fixed, mutually-agreed budget can be allocated to these actors. With the help of democratic decision-making tools, the respective actors can, subsequently, decide what causes they consider most appropriate to spend the budget on. Open communication about such agreements will, in return, minimise the risk of NGOs, etc. voicing critique, and/or create openings to invite them to constructively discuss the agreements.
  • To avoid the pitfall of overpromising through establishing mutual agreements about a budget and responsibility from the start onwards. Actually, investors often make promises to a range of actors – thereby demonstrating that many of them are aware of the impact of the social field. However, over time they frequently cannot live up to their promises, which undermines mutual trust. Instead, through honest dialogue – and giving actors/stakeholders a sense of ownership over, for example, CSR budgets – investors may discover that most actors do not have outrageous demands, as well as that these ‘demands’ are not solely economic, but also about respect. As a result of such dialogues, ad hoc requests, which managers, as I have observed, frequently have to devote time to throughout investment cycles, will be reduced – and thus save costs.
  • To enhance support in the event of unexpected developments. Like investment cycles that frequently turn out differently than initially projected, interactions with various actors are dynamic and may develop in directions that were not considered during initial exchanges. For example, investors may struggle to fulfil original expectations and agreements due to financial issues that occur over time. However, when investors are transparent about their challenges, actors affected tend to be open to renegotiating agreements. In general, evaluating relationships, agreements, etc. at agreed moments in time is recommended, as this advances mutual acceptance. To maintain good relationships, furthermore, transparency about how financial benefits can be relatively equally distributed is advisable. Investments are not expected to become philanthropic endeavours, yet when there is transparency and (agreed) understanding about various needs, long-term support for investments will increase.

At first sight, the business case for anthropological insights is most apparent for investors directly involved in investments, as they have a stronger incentive to obtain comprehensive knowledge. Yet also in the case of institutional investors with broad portfolios, the insights can be applied, especially with the aim of increasing the environmental and social sustainability of portfolios. Asset managers may not be able to devote the same amount of time and funding as in the case of individual investments, but by remaining sensitive to which actors may be affected and how, and what expectations they may have, etc., blind spots in the assessment of investments (and their supplier and buyer markets) are more easily identified. Through meaningful discussion with portfolio investments/companies, moreover, management of these individual investments/companies can be sensitised to consider the issues discussed above, which will strengthen the quality of investment portfolios.

Of course, identifying the range of actors involved in, or affected by, an investment depends on the kind of investment/company in question. An agribusiness operating in the Zambian countryside confronted with (poor) rural residents is different from a paint-manufacturing plant in an industrial complex in France. Yet even when those directly affected are less easily identified, public acceptance of investments will still be enhanced when dialogues with the social field in which they operate become an integral part of the business operations.

Last but by no means least, the impact of the social field in which investments/businesses operate will only become more important in the face of the increasing consequences of climate change. Climate-related changes, after all, not only impact ‘standard’ risks, such as weather patterns, but also affect the social field in which investments operate. Rising temperature, droughts, floods, costs and availability of food, etc. may directly impact actors neighbouring investments, which potentially alters their interactions with investments. In response to developments in the social field, government regulation may also change and affect the profitability of investments. With better knowledge about, and honest engagement with, the expectations, obligations and experiences of actors (in)directly involved, investors will be able to better predict how their investments may be impacted, while simultaneously gaining new tools to manage conversations with actors/stakeholders relevant to their investments.

Photo by Adi Goldstein on Unsplash.

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17 November 2022
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