Corporate Disclosure of Human Capital Metrics

Aaron Bernstein is a Senior Research Fellow at the Harvard Law School Labor and Worklife Program. Larry Beeferman is the Director of the Program’s Pensions and Capital Stewardship Project. This post is based on their recent paper.

The concept of human capital (HC) has for more than a half century informed discussion about how corporations are managed. The idea is typically associated with the skills, knowledge and abilities employees bring to their work. In recent years, institutional investors have taken a mounting interest in the subject, in large part due to the increasing awareness that HC policies are material to long-term financial performance and success. (See our 2015 paper The Materiality of Human Capital to Corporate Financial Performance.) However, investors face significant challenges in the quest for data on the topic that they can use to inform decisions about investments or discussions with boards and executives about corporate strategy and competitiveness.

Our paper helps address that challenge by assessing the state of HC data collection and reporting by large corporations traded on global stock exchanges. We do so with a unique data set drawn from a survey of nearly 2,000 of the largest firms of such firms which has been undertaken by RobecoSAM annually since 1999 and it has is used to select constituents of the Dow Jones Sustainability Indices. This allowed us to assess HC metrics companies disclose publicly as well as those reported in RobecoSAM’s confidential survey, thus affording a more complete assessment than any based solely on public disclosures.

We find majorities or significant minorities of these companies collect a variety of human capital (HC) metrics that are of increasing interest to institutional investors. These averages mask a sharp dichotomy between metrics disclosed publicly and those reported by respondents to the survey. For example, about half of these companies report the average hours of training they provided to employees annually. But the figure is dramatically higher for respondents, at 84 percent, versus just 18 percent of firms assessed using public reporting. Similarly, while 52 percent of firms overall report employee fatalities, 96 percent of survey respondents disclosed the metrics, but only 17 percent of non-respondent ones. Comparable differentials were found across other measures. However, the reporting differs among regions and countries such as the United States and Great Britain—the former being a laggard—as well as between large market cap companies compared with smaller ones.

The findings suggest that investors could gain access to HC data that is material to financial performance if they request public disclosure of information already gathered by a critical mass of large corporations in major markets. Although there is some HC data available now from public reporting, there is much more that companies could provide from metrics they produce for internal management purposes. Institutional investors that wish to gain access to this data could use the results of this paper as a roadmap to identify metrics already generated by majorities or significant minorities of companies in specific industries and markets. They then could ask that all firms meet those disclosure standards, and make the case that such requests would not put undue burdens on those not now disclosing them given the many firms already doing so. It seems likely that many companies do not generate or disclose many HC metrics primarily because the investment community has not requested them. However, a strong sign of change is the rule-making petition recently submitted by the Human Capital Management Coalition—a group of institutional investors with $2.8 trillion in assets—to the Securities and Exchange Commission asking it to require issuers to “disclose information about their human capital management policies, practices and performance.”

The complete paper is available here.

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