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Harvard Study: Companies Not Reporting ‘Human Capital’ Metrics Like Occupational Safety

A new study from Harvard identifies human capital metrics measured by global companies but determined many companies don’t disclose them on public reports.

Human capital metrics, including occupational safety and health data, frequently are collected by a majority of global companies, yet many of these firms are not publicly reporting the information, according to a study released Oct. 23 by the Harvard Law School Labor and Worklife Program in conjunction with the Center for Safety and Health Sustainability (CSHS).

"Corporate Disclosure of Human Capital Metrics," authored by Aaron Bernstein and Larry Beeferman of the Harvard Law School Pensions and Capital Stewardship Project, notes that human capital metrics are of increasing interest to global investors who understand that a sustainable workforce is critical to a company’s success, including its bottom line.

“The recent heightened interest in human capital and human capital reporting is part of a fundamental rethinking of how organizational value and social impact should be understood and evaluated,” the authors noted in the study intro. “Traditional measures of organizational value and social impact are no longer valid in the age of Uber, Airbnb and disruptive thinking.” They noted that senior management teams and financial investors “want greater clarity about how the organization’s people and relationships among them create value for their stakeholders. Increased focus on linking human capital performance indicators to outcomes and impacts allows management teams to make informed decisions on strategic options and tradeoffs and key stakeholders to better evaluate the value of an organization’s social efforts.”

The study’s conclusion draws on data from a 2016 Corporate Sustainability Assessment (CSA) conducted by RobecoSAM of nearly 2,000 of the largest companies traded on global exchanges. Survey respondents were far more likely to report human capital metrics than non-respondents, whose data was gathered solely from public reports, suggesting that many respondents collect metrics but don’t disclose them.

The study shows that 96 percent of survey respondents disclosed metrics on employee fatalities while only 17 percent of publicly assessed companies did so. Also, the study indicates that companies typically respond to disclosure requests by citing burdens that would be imposed to collect the data, when in fact a critical mass of global companies already carry out such tasks. The research was funded by the American Society of Safety Engineers (ASSE) and the ASSE Foundation.

“Our findings establish a firm basis on which investors can request a comprehensive disclosure of employee safety and health metrics and other human capital data,” Beeferman said.

The study discovered that firms in Europe – and Great Britain in particular – generally report human capital metrics far more frequently than companies in the Asia-Pacific region, and those in the United States often lag far behind. Also, larger firms typically disclose information more often than smaller ones.

OHS Is a Foundational Element

Occupational safety and health is a foundational element of human capital. Corporate disclosure of human capital metrics has been shown through a large body of empirical work to be associated with better corporate performance and risk mitigation. Effective human capital management is essential to long-term value creation and critical to evaluating a company’s future performance, therefore making it important to investors.

The study examined a dozen of what are known as human capital metrics assessed in the 2016 CSA: training hours, training cost, return on training, employee development (ED), ED benefits, ED quantitative, operating profit per employee, OHS framework, OHS oversight, OHS work environment, lost-time injuries and fatalities. (Other groups have issued voluntary recommendations to members, requesting different metrics they could incorporate into disclosure guidelines. The World Federation of Exchanges, for example, requested 33 voluntary metrics from its member stock exchanges, eight of which related to human capital:  The ratio of CEO compensation to the average pay of full-time employees; the ratio of pay between male and female employees; the turnover rate; the percent of jobs held by women; the ratio of full-time workers to part-timers; the publication of a non-discrimination policy; the number of injuries and fatalities; and the publication of an OHS policy.)

“Organizations that disclose occupational safety and health data as part of their reporting practices can effectively benchmark against each other and gain feedback on improving human capital management,” said Kathy A. Seabrook, CSHS chair. “New levels of collaboration are needed to greatly reduce workplace injuries and illnesses.”

The research was discussed at a workshop at Harvard Law School that included experts in occupational safety, investor groups, standards-setting bodies and government agencies. The debates focused on the challenges and opportunities in advancing human capital as a key subject to investors. Topics included the policies that matter most to business and society, connections between human capital issues and organizational performance, measurement of human capital achievement and actions to spur the disclosure of human capital information.

Participants also discussed a petition asking the U.S. Securities and Exchange Commission to require human capital reporting by U.S. companies that was filed in July by an investor group called the Human Capital Management Coalition, several of whose members attended the workshop.

TAGS: Safety
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