As we previously discussed, the International Sustainability Standards Board (ISSB) recently issued Request for Information Consultation on Agenda Priorities, to seek feedback on its priorities for its next two-year work plan. The document is open for comment until September 1, 2023.

The ISSB has identified four potential projects in particular: “three sustainability-related research projects—1) biodiversity, ecosystems and ecosystem services; 2) human capital; 3) human rights—and a fourth project researching integration in reporting.” We already looked at the potential project relating to human rights. This is how it summarizes the item on human capital:

• Human capital refers to the people who make up an entity’s own workforce, and, consistent with the Integrated Reporting Framework, the workforce’s respective competencies, capabilities and experience, and motivations to innovate. How an entity manages and invests in its workforce can directly affect its ability to deliver value in the long term. Human capital management includes such issues as 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.
• Various aspects of human capital management are likely to drive value in different ways. For example, academics, consulting firms and subject matter-expert organizations have found that an entity’s strategy to promote DEI can affect value by enhancing the entity’s ability to attract and retain talent, effectively design, market and deliver products and services, strengthen community relations, innovate, and identify risks. Furthermore, the health, safety and wellbeing of an entity’s employees are associated with increased productivity, reduced workforce turnover and cost savings. Moreover, a significant reliance on an ‘alternative’ workforce—temporary, provisional or contingent workers, including those employed in the ‘gig economy’—is associated with legal and regulatory risks.

The document indicates that a research project in this area might encompass developing a framework of definitions and categories of human capital, incorporating and building on research by the ISSB’s legacy organizations; understanding the sustainability-related risks and opportunities related to each human capital-related subtopic and the related information material to investors, including risks and opportunities associated with specific business models, economic activities and other common features that characterize participation in an industry; and understanding existing practices, tools and metrics used to measure and disclose material information about sustainability-related risks and opportunities for each subtopic. Topics that might be prioritized include worker wellbeing (including mental health and benefits); DEI; employee engagement; workforce investment; the alternative workforce; labour conditions in the value chain; and workforce composition and costs.

In a 2021 submission to the USA Emerging Issues Task Force, the  “Human Capital Management Coalition” provided some pandemic-related examples of where better human capital disclosure would have been useful, including:

• Amazon’s announcements in the spring and fall of 2020 that it would fill 175,000 and 100,000 new positions, respectively, to meet COVID-19 demand, without turnover or absenteeism data to help determine whether it was replacing or expanding its workforce. Data reported in national media suggests that Amazon may experience approximately 150 percent turnover per year, or at least twice the turnover of peers in the retail and logistics industries.
• Announcement from Walgreens that it would lay off 4,000 workers just four months after announcing it would hire 9,500 workers, without total workforce headcount (FT, PT, and contingent), total workforce cost, and turnover data. This information would have allowed investors to appropriately evaluate layoff news, which led to a 9 percent decline in the stock’s value.
• CVS Health’s March 2020 announcement that it would expand employee benefits, including bonuses and extended sick leave and childcare benefits, in order to attract and retain workers. However, the company did not disclose the total expenditures for the initiative or its total workforce costs, making it difficult for investors to gauge whether these hiring and retention initiatives were meaningful and effective.

These are all tangibly quantitative instances (perhaps it could be argued in some of the cases that better information was required even by existing requirements, if the disclosures were to be avoid being potentially misleading) and as such might represent the easier part of what the ISSB intends to grapple with. As we covered here, disclosures on how, for instance, an entity’s “strategy to promote DEI (affects) value by enhancing the entity’s ability to attract and retain talent…innovate, and identify risks” and so on would likely carry a significant risk of being unreliable, however well-intended. In that same aforementioned submission, the HCMC advocated for disclosure of workplace diversity data “including diversity by seniority, sufficient to understand the company’s efforts to access and develop new sources of human capital and any strengths or weaknesses in its ability to do so” – a form of words that sounds a bit more workable than the ISSB’s current articulation. But maybe a major ISSB effort in this regard will lead to new perspectives on how to evaluate and articulate such matters…

The opinions expressed are solely those of the author.