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Prepare now for potential SEC updates to human capital reporting that could include diversity and inclusion
For many companies, their greatest asset — and one of their biggest costs — is their people. Companies have always competed for the best talent, but low unemployment, highly visible global social movements, looming regulatory requirements and the rise of hybrid work have led to increased scrutiny from stakeholders about how companies attract, train and retain top talent — and how those practices can drive long-term growth, enhance brand reputation and build trust across the organization.
According to a PwC Survey, 48% of consumers believe that companies need to do more to advance societal issues, including human capital management (HCM) elements like diversity, equity and inclusion (DEI), hiring practices and fair pay. Leaders are now being called on to provide greater disclosures that can help stakeholders evaluate whether a business has the right workforce to meet both immediate and emerging business challenges.
As the SEC prepares to propose new rules on HCM disclosure requirements — which were last updated in 2020 — and global regulations ramp up, it is imperative for companies to develop a strategy for collecting, measuring and reporting on human capital data and to track progress over time.
Organizations that are successful in this initiative may potentially be better able to communicate their commitment and progress, increase employee engagement, manage associated risk and check that their efforts are achieving their goals — while also improving their reputation and gaining greater interest from investors.
Regulatory bodies around the world are increasing the call for companies to disclose information including board diversity representation and DEI program objectives. In some cases, companies must explain in their disclosures why they haven’t met certain regulatory targets related to diversity measures. In 2023, we expect to see proposed updates to the SEC’s human capital disclosure rules.
When compared to other environmental, social, and governance (ESG) metrics, human capital disclosures aren’t as easily defined, and companies may lack established track records of data that can show impacts over time. In such an environment, companies must overcome four barriers:
As many anticipate that the SEC will propose updates to its human capital reporting requirements, investors, business partners and consumers are demanding more transparency of companies’ HCM practices.
In the past, your company may have been asked solely about its DEI program. Currently, stakeholders may also be interested in deeper measures on workforce composition, workforce stability and turnover, the composition of leadership ranks, pay gaps, worker injuries and human rights issues in the supply chain.
The steps to investor-grade human capital reporting are aligned to other reporting processes you may be very familiar with, including climate, cyber and financial reporting. As you prepare for upcoming HC disclosure requirements, we recommend starting with these three steps:
Metrics are important, but they don’t necessarily reveal the full story of your company’s values, the programs you have in place and the efforts you’ve made. An inspiring narrative can bridge this gap. It’s critical to build a narrative around HCM efforts that links specifically to your corporate purpose, aligns the leadership team and inspires the workforce.
Designing the right reporting and employee and stakeholder engagement — and linking HCM to a company’s mission — will help an organization encourage desired behaviors and mobilize individual and organizational efforts toward achieving its goals. The actions of employees — those along the supply chain and stakeholders — directly reflect their experiences with the organization’s ideals and priorities. Both the work and working methods of employees are positively affected when they clearly understand what’s behind a request or an effort. As a result, the perception and engagement of all stakeholders will also be affected.
Companies are at different stages of their journeys to build a human capital reporting strategy. However, regardless of the stage, your company can prepare for the SEC’s proposed rules. Company leaders may begin the process for investor-grade human capital reporting by leading discussions on:
Through this exercise, companies can show both progress and accountability. They can also use their data-driven insights to gain a clear understanding and path forward for delivering stronger HCM outcomes for both today and tomorrow.