Investors need better human capital reporting given their increasing focus on workforce insights in investment decisions, preliminary research presented to the International Sustainability Standards Board’s (ISSB) in a recent meeting has found.
However, those same investors are being held back by fragmented and inconsistent disclosures across companies that hinders their ability to weigh critical factors like workforce composition, turnover rates, and training investments.
Staff said: “There’s consensus […] that companies with strong human capital management, often defined as corporate culture, tend to outperform their peers and exhibit greater resilience over extended time horizons.”
So far, staff’s outreach has focused on investors and other stakeholders such as asset managers, asset owners, and banks.
The board added the human capital project to its workplan as a research effort following the conclusion of its recent workplan consultation on its agenda priorities for the next two years.
The project, which mirrors a parallel project on biodiversity and ecosystem services, is in its initial phase, with a focus on understanding the market need for more useful disclosure of information about the topic.
The board’s discussion centered on two research papers presented by the staff on investor interest in human capital, and the effects of human capital–related risks and opportunities on an entity’s prospects.
Among the key themes to emerge from the discussion were the pervasive nature of IFRS S1 and the importance of developing standards that meet common informational needs of investors.
Investor human capital informational needs
Investors told the board they typically want both qualitative and quantitative information, with a strong desire for “basic workforce information”, driven by both regulatory, investment and client pressures.
They also emphasise the importance of industry-specific metrics, such as turnover rates, workforce composition, and training investments, as well as narrative disclosures explaining how those metrics connect to business strategy, risk, and governance.
Existing disclosures present challenges due to fragmented and inconsistent information across companies, hindering comparability, and concerns about information overload with some firms releasing extensive data that investors find lacking decision usefulness.
Board members’ feedback
When considering the need for new guidance on human capital, ISSB member Verity Chegar asked if the relevant qualitative information is “already covered in IFRS S1”, specifically regarding “strategy and current and anticipated effects, governance, [and] risk management processes”.
She also asked whether “the market [is] telling us that there’s certain types of qualitative and quantitative disclosures that are more unique to human capital, where there’s something that would require broader guidance?”
Her board colleague Richard Barker also emphasised the importance of understanding how investors use human capital metrics for different purposes, such as screening, valuation, and “stock selection and stewardship”.
He said: “[Something] I would like to explore more is why and how investors use different types of human capital information in different ways.”
Effects on an entity’s prospects
Meanwhile, the board also considered the staff’s preliminary findings on the effects of human capital on an entity’s prospects.
“There’s consensus among investors, academics, and other key stakeholders that companies with strong human capital management – often defined as corporate culture – tend to outperform their peers and exhibit greater resilience over extended time horizons.”
As for the challenges the board will face in developing human capital metrics, Sue Lloyd, ISSB vice chair, emphasised the importance of developing neutral, descriptive language for human capital disclosures to avoid imposing subjective judgments on what constitutes “good” or “bad” business practices.
What was needed, she said, were metrics that directly tie to an entity’s prospects, enabling comparisons and evaluations by primary users.
She also said that screening practices should be understood in context, as they may reflect geographic norms rather than materiality-driven decisions.
Staff said they plan to conduct further outreach and prepare “a more granular assessment in early 2025”.
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