Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 261

The importance of corporate culture in investing

Environmental, Social and Governance (ESG) investing has been in a structural growth phase for some years now. A report by the Responsible Investment Association Australasia (RIAA) notes that 81% of the largest super funds have now embedded a formal commitment to responsible investment, up from 70% in 2016. Additional research conducted by the RIAA found that funds which are implementing core responsible investment strategies are outperforming equivalent Australian and international share funds and multi-sector growth funds over most time horizons.

The corporate culture advantage

Core to ESG is governance. Corporate governance upheld by a robust company culture can help organisations thrive and can become a powerful differentiator. We recently wrote about how focussed on culture the CEOs at Berkshire Hathaway are. The more we look, the more we see companies taking market share and outpacing their competition by placing focus here. A great culture may contribute to outperformance or a generation of long-term shareholder value via attracting and retaining the best staff or improving brand and reputation, whereas poor culture can be costly to a business.

Corporate culture is clearly taken seriously by the world’s leading businesses. A 2018 study published in the Harvard Business Review ‘The Leader’s Guide to Corporate Culture’ references several high-profile CEOs and their approach to culture, two of our favourite quotes being:

“Most of the greatest companies in the world also have great purposes … Having a deeper, more transcendent purpose is highly energizing for all of the various interdependent stakeholders.” —John Mackey, founder and CEO, Whole Foods

“It is incredibly important to be open and accessible and treat people fairly and look them in the eye and tell them what is on your mind.”—Bob Iger, CEO Disney

In a recent interview, one of the most successful traders in the world, Paul Tudor-Jones, made the following comments on company culture:

“If you have a motivated workforce that you pay and treat well, you produce a high quality and low-cost product that has some benefit, and you treat your customers throughout with respect, this is a winning formula and these companies are outperforming those that don’t. It’s a win-win, go look at the companies that are doing it, they’re outperforming everyone else.

The drivers of socially responsible investing

Mr Jones has gone a step further in redefining the definition of socially responsible investing, believing that capitalism may need modernising. He polled the American public on their definition of ‘just’ behaviour. The poll took 200 socially responsible metrics and combined them into 39, and then aggregated those into seven drivers. Those seven drivers in order of importance are:

  1. How do you pay and treat workers?
  2. How do you treat your customers, do you respect them individually, their privacy?
  3. Do you make high quality, low cost, socially beneficial products?
  4. Environment sustainability
  5. Community awareness
  6. Domestic job creation
  7. Do you serve your shareholders?

Using these seven socially responsible metrics, Mr Jones then created an index based on the 1,000 largest US companies and applied these criteria. Assessing the companies which performed best or in the top half of each sector, he found the following from this group:

  • These companies on average created 20% more jobs
  • These companies pay over 70% less in fines
  • They donate 2.4 times more to the local community and charities
  • And arguably the most important point for investors, these companies had on average 7% higher return on equity (ROE) than the companies in the bottom half of each sector.

Mr Jones presents a strong case for including these questions as part of the investment process or when including a new position in a portfolio.

We agree, and given the significant potential benefit to long-term shareholder returns, these considerations should be of growing importance for all investors.

 

Ben Rundle is a Portfolio Manager at NAOS Asset Management. This material is provided for general information purposes only and must not be construed as investment advice. It does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision, investors should consider obtaining professional investment advice that is tailored to their specific circumstances.

NAOS is a sponsor of Cuffelinks. For more articles and papers from NAOS, please click here.

 

 

RELATED ARTICLES

Arms stocks don’t belong in our ESG funds

Beyond the acronym, navigating important ESG choices

Elevating responsible investing to solve real world challenges

banner

Most viewed in recent weeks

Are LICs licked?

LICs are continuing to struggle with large discounts and frustrated investors are wondering whether it’s worth holding onto them. This explains why the next 6-12 months will be make or break for many LICs.

Retirement income expectations hit new highs

Younger Australians think they’ll need $100k a year in retirement - nearly double what current retirees spend. Expectations are rising fast, but are they realistic or just another case of lifestyle inflation?

Welcome to Firstlinks Edition 627 with weekend update

This week, I got the news that my mother has dementia. It came shortly after my father received the same diagnosis. This is a meditation on getting old and my regrets in not getting my parents’ affairs in order sooner.

  • 4 September 2025

5 charts every retiree must see…

Retirement can be daunting for Australians facing financial uncertainty. Understand your goals, longevity challenges, inflation impacts, market risks, and components of retirement income with these crucial charts.

Why super returns may be heading lower

Five mega trends point to risks of a more inflation prone and lower growth environment. This, along with rich market valuations, should constrain medium term superannuation returns to around 5% per annum.

Super crosses the retirement Rubicon

Australia's superannuation system faces a 'Rubicon' moment, a turning point where the focus is shifting from accumulation phase to retirement readiness, but unfortunately, many funds are not rising to the challenge.

Latest Updates

Investment strategies

Why I dislike dividend stocks

If you need income then buying dividend stocks makes perfect sense. But if you don’t then it makes little sense because it’s likely to limit building real wealth. Here’s what you should do instead.

Superannuation

Meg on SMSFs: Indexation of Division 296 tax isn't enough

Labor is reviewing the $3 million super tax's most contentious aspects: lack of indexation and the tax on unrealised gains. Those fighting for change shouldn’t just settle for indexation of the threshold.

Shares

Will ASX dividends rise over the next 12 months?

Market forecasts for ASX dividend yields are at a 30-year low amid fears about the economy and the capacity for banks and resource companies to pay higher dividends. This pessimism seems overdone.

Shares

Expensive market valuations may make sense

World share markets seem toppy at first glance, though digging deeper reveals important nuances. While the top 2% of stocks are pricey, they're also growing faster, and the remaining 98% are inexpensive versus history.

Fixed interest

The end of the strong US dollar cycle

The US dollar’s overvaluation, weaker fundamentals, and crowded positioning point to further downside. Diversifying into non-US equities and emerging market debt may offer opportunities for global investors.

Investment strategies

Today’s case for floating rate notes

Market volatility and uncertainty in 2025 prompt the need for a diversified portfolio. Floating Rate Notes offer stability, income, and protection against interest rate risks, making them a valuable investment option.

Strategy

Breaking down recent footy finals by the numbers

In a first, 2025 saw AFL and NRL minor premiers both go out in straight sets. AFL data suggests the pre-finals bye is weakening the stranglehold of top-4 sides more than ever before.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.