Wednesday, September 13, 2023

Council for Institutional Investors urges ISSB to make human capital disclosures ‘highest priority’

By Lene Powell, J.D.

The Council for Institutional Investors identified human capital as a “highest priority” project area for the International Sustainability Standards Board (ISSB) in the next two years. In a response to an ISSB call for feedback, CII said that clear definitions of reporting items and a well-developed framework could substantially improve consistency and comparability of human capital disclosures for the benefit of investors and the capital markets.

“Human capital is an important intangible asset and CII believes there is a pervasive need for more information about human capital management in financial reports,” the group said in a letter.

Human capital as priority area for ISSB. The ISSB published a Request for Information Consultation on Agenda Priorities on May 4, 2023 to seek feedback on its priorities for its next two-year work plan. The comment period closed on September 1.

The ISSB identified human capital as one of four priority topics for proposed research and standard-setting projects. In this topic, ISSB included workforce composition; workforce stability; diversity, equity and inclusion (DEI); training and development; health, safety and wellbeing; and compensation, with regard to an entity’s employees and contractors.

According to ISSB, human capital is a priority topic because human capital management drives value, but investors have said they do not have sufficiently decision-useful and comparable information in this area.

Institutional investor groups seeking more disclosures on human capital include the Human Capital Management Coalition, a group of 37 institutional investors representing more than US$8 trillion in assets under management, and the Workforce Disclosure Initiative (WDI), an investor coalition of 68 institutions with US$10 trillion AUM.

CII: human capital is “highest priority.” Research and standard setting on human capital warrants the highest priority, said CII.

CII supports enhancements to human capital disclosure in at least four key areas:
  1. Total number of employees;
  2. Breakdown of the numbers of full-time, parttime, and contingent workers;
  3. Employee turnover rates; and
  4. Total cost of a company’s workforce.
“A project delivering comparability on these four areas for companies of similar size and industry, paired with qualitative disclosures giving companies the opportunity to provide context, could substantially strengthen investors’ ability to evaluate this pillar of company value,” CII wrote.

Relevant to investors. CII stressed that the ISSB should only pursue projects with significant relevance to investors. CII generally supports the ISSB’s stated criteria for assessing workplan priorities, which lists importance to investors as the top criterion.

Other calls for human capital disclosure. SEC Chair Gary Gensler has signaled that the SEC is looking at proposing new rules for human capital disclosure.

In August 2021, Gensler stated on the X social media site (formerly known as Twitter):

“Investors want to better understand one of the most critical assets of a company: its people. I’ve asked staff to propose recommendations for the Commission’s consideration on human capital disclosure.”

The SEC’s rule agenda for Spring 2023 states, “The Division is considering recommending that the Commission propose rule amendments to enhance registrant disclosures regarding human capital management.”

The AFL-CIO recently submitted a letter in support of two rulemaking petitions for additional human capital disclosures.