The value and challenge of good human capital reporting

“Our employees are our greatest asset.”

We often hear this phrase, and variations on it, from CEOs or see it written in companies’ annual reports. But what does it mean in practice? 

“Our employees are our greatest asset.”

We often hear this phrase, and variations on it, from CEOs or see it written in companies’ annual reports. But what does it mean in practice? And how can investors and other interested observers distinguish between companies which genuinely view their employees as something to value and invest in, and those which see workers simply as a cost to be minimised?

Most companies include some information on employment-related issues in their annual reports or websites. This often covers topics such as health and safety, training and employee engagement. However, the quantity and quality of this information varies significantly between companies, making comparison difficult. Furthermore, very few companies clearly articulate why it is good for their business to have a well-motivated, happy and healthy workforce.

Over the past year, Rathbone Greenbank has been participating in a collaborative engagement project on the issue of employee relations. Co-ordinated by the Principles for Responsible Investment (PRI), this project is focused on the issue of ‘human capital reporting’. By this, we mean information relating to how a company protects and invests in the value created by its employees; for example, by protecting employees from harm, paying a fair wage, and creating an attractive working environment. Members of the PRI engagement project are in dialogue with a group of global companies in the retail industry. Our aims are to identify current reporting trends, heighten board awareness of the need for good human capital management and reporting, and, most importantly, to encourage improvement in companies’ performance. While there are examples of good practice in some areas, it remains clear that there is significant room for improvement in the way that companies communicate on this issue.

Rathbone Greenbank was also pleased to participate in a recent stakeholder survey conducted on behalf of the Chartered Institute of Personnel and Development (CIPD) as part of its ‘Valuing your Talent’ project. The CIPD’s subsequent report explores the views of investors on the state of existing practice on human capital reporting and its value in terms of providing insights into business opportunities or risks. We contributed to this report, noting the need for a combination of quantified data and narrative commentary and emphasising the importance of gaining an understanding of the overall culture within an organisation.

Rathbone Greenbank believes that companies demonstrating strong social and environmental management and good corporate governance, while also providing products and services that meet the needs of a changing world, are likely to be good long-term investments. We will therefore continue to engage with companies in order to encourage them to improve their employment practices and human capital reporting.