There are different metrics to assess the investability of a company, such as the financial health of the business or the macroeconomic tailwinds behind it.
However, Stephanie Niven, portfolio manager of the Ninety One Global Sustainable Equity fund, said that corporate culture is an important factor. She defined it as a set of workplace practices.
She said: “What's interesting about defining culture as workplace practices is that there's a compelling alpha signature associated with that.
“It's very difficult for investors to really capture corporate culture. Typically, people don't have frameworks and it's very difficult to distil down to a measurable number.”
As a result, Ninety One has designed an assessment framework looking at four key principles: ownership mindset, recognition, trust and support.
Ownership mindset is about the company enabling its employees to feel they are part of the business, whereas recognition is not only about salary but also non-financial recognition.
As for trust, it means how well the management team is communicating the strategy and ethos of the company, allowing each employee to understand how they can deliver value within their role.
Support, the fourth component, looks into how well a business delivers development opportunities, nurtures talent and enables employees to do the best that they can within the workplace.
Niven said: “When businesses do well in those four areas, we see a very engaged employee base.”
She gave the example of Schneider Electric, a company specialised in digital automation and energy management, that Ninety One Global Sustainable Equity holds.
“I really like the culture, the way it's decentralised. It has workplace practices that enables a lot of autonomy to the employees at the point of interaction with the customer,” Niven explained.
“That means the business can innovate and can offer the right products to meet customer demand, while keeping employees happy.”
As such information is hard to quantify in numbers, Ninety One has developed a set of questions they ask potential investee businesses. That includes how they empower their employees, their view on the challenges of decentralisation and centralisation or how they support and develop their employees.
Niven said that it is also important to look at who’s answering the questions. That is whether it is the CEO or whether it is outsourced somewhere else within the company.
She added: “This is not a questionnaire. This is not something we send off and say ‘fill this in’. These are conversation starters that will really uncover those examples and those workplace practices that we want to see in those businesses.
“This is s part of our understanding of the competitive advantage of the businesses we operate in.”
Performance of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Over the past 10 years, Ninety One Global Sustainable Equity has outperformed the IA Global sector but slightly underperformed the MSCI AC World index.
Its current top five holdings are Aon, Rentokil, Elevance Health, Mastercard and UnitedHealth.
Recently, the fund added Taiwan Semiconductor Manufacturing to its holdings.
Niven said: “That is part of the carbon-avoidance sustainability driver. We can use their production capabilities to improve yield and really deliver that customer choice as they are improving the customer's ability to drive decarbonisation.”
Conversely, the fund recently exited Roche, a Swiss healthcare company.
Niven added: “We have three key reasons to sell a business: if we think the sustainability thesis is broken, if we think that the competitive dynamics have changed or if we think that valuation is no longer offering us upside.
“The exit from Roche was very much on that. We thought that all of the ability of the business was now in the price.”