Blog: SASB Introduces New Bulletin on Human Capital Disclosure | Cooley LLP


In August, the SEC amended Reg SK’s disclosure requirements regarding business descriptions, legal proceedings and risk factors. Perhaps the most significant change has been the improvement in the human capital disclosure requirement, a topic that has recently been brought to the fore by the impact of COVID-19 on the workforce. The amended rule requires companies to disclose, to the extent of material, information about human capital resources, including any human capital metrics or targets that the company focuses on in running the business. . The new human capital disclosure requirement largely reflects the SEC’s “historic commitment to a principled, registrant-specific approach to reporting” which is “grounded in materiality.” (See this post from PubCo.) Emphasizing that the requirement was “principled” did not mean that disclosure of vague generalities would suffice. On the contrary, in his Declaration Regarding the changes, SEC Chairman Jay Clayton noted that while the SEC did not prescribe “specific and rigid measures” under the principled approach, he “expected to see meaningful qualitative and quantitative disclosure, including, where applicable, disclosure of metrics companies actually use to run their business. While the principle-based approach offers the advantage of flexibility to tailor disclosure to each company, nonetheless, the absence of any prescriptive element has left many companies looking for the best way to approach. disclosure of human capital. Today, the independent SASB standards body, the Sustainability Accounting Standards Board, released a Human capital bulletin which summarizes the elements of the SASB standards that relate to human capital and provides an overview of some human capital topics and measures that apply to all 77 SASB industry standards.

According to the Bulletin, “human capital” addresses issues that affect a company’s workforce and is “one of the most common disclosure areas among SASB’s 77 industry-specific standards, appearing in all 11 sectors and the majority of individual sector standards. “As the risks and opportunities associated with human capital may vary from sector to sector, specific disclosure topics for each sector are selected on the basis of” evidence of financial impact and interest. investors ”. The Bulletin observes that some relevant aspects of human capital may fall under dimensions of sustainability other than ‘human capital’, such as supply chain, human rights and risk management of critical incidents, which makes other dimensions of sustainability worth considering.

The Bulletin advocates the use of SASB standards as a tool to help companies identify human capital-related disclosure topics and metrics to use in disclosures under the new SEC requirements. Since all sectors of the SASB industry contain disclosure topics and performance metrics related to human capital, it is advisable for companies to start by reviewing disclosure topics and performance metrics related to human capital in standards applicable to the company’s industry, but also to consider standards for other industries with similar characteristics. In the Bulletin, SASB identifies a number of topics and measures related to human capital and divides them into three groups: Work practices; Employee health and safety; and employee engagement, diversity and inclusion. SASB also identifies a number of measures related to supply chain management, which does not cover direct employees and is understood by a different sustainability dimension, but may still be relevant for human capital considered more broadly.

Work practices includes measures such as the percentage of the active workforce covered by collective agreements; number of work stoppages and total number of days of inactivity; total amount of pecuniary losses resulting from legal proceedings relating to labor law violations; voluntary and involuntary turnover rate; average hourly wage and percentage of employees earning minimum wage, by region; description of policies and programs to prevent harassment of workers and percentage of drivers classified as independent contractors. The Bulletin identifies the industrial sectors to which each of the parameters identified can be applied.

Employee health and safety includes both physical and mental well-being, and integrates training and culture. The Bulletin identifies as the most commonly referenced employee health and safety measure “the total recordable incident rate and fatality rate for direct and contract employees.” Some industries, such as fuel cells and industrial batteries, chemicals, and semiconductors, “include qualitative metrics, discussion, and analysis that call for discussion of the company’s strategy to embed a culture. safety and / or assess, monitor and reduce employee exposure to human health risks. There are also a number of highly specialized metrics related to specific industries, in some cases identifying specific illnesses and conditions that plague workers in certain occupations, such as chronic respiratory health issues.

Employee engagement, diversity and inclusion covers disclosure topics associated with “a company’s ability to ensure that its culture, hiring and promotion practices encompass building a diverse and inclusive workforce.” This includes the issue of discriminatory practices. Relevant metrics may include, for example, percentage representation of gender and racial / ethnic groups for management, technical staff and all other employees; employee engagement as a percentage; voluntary and involuntary turnover rate of all employees; percentage of employees of foreign nationality (or holders of an H-1B visa); the total amount of pecuniary losses resulting from legal proceedings relating to employment discrimination; and a discussion of talent recruitment and retention efforts for certain staff, such as scientists, research and development staff, or healthcare practitioners.

Supply Chain addresses human capital issues that do not concern direct employees but rather workers “managed through indirect channels”, thus falling within the dimension of sustainability of the business model and innovation. SASB’s disclosure topics in this area relate to the conduct of suppliers in the course of their operational activities, such as environmental responsibility, human rights, labor practices, ethics and corruption. The measures identified in the Bulletin include the rate of non-compliance of supplier social and environmental responsibility audits and the rate of associated corrective actions for major and minor non-compliance; discussion on the strategy for managing environmental and social risks arising from the supply chain; percentage of products purchased certified according to a third-party environmental and / or social standard, and percentages by standard; and number of establishments audited according to a code of conduct in terms of social responsibility.

Beyond the current framework, in light of the growing interest in human capital and the rapidly evolving issues in this area due to emerging trends, in 2019 SASB launched a research project on management human capital to “design an evidence-based framework to support the identification of significant financial impacts related to human capital management. The project should lead to new recommendations for possible changes to industry standards incorporating new elements associated with human capital. The main themes identified so far include:

  • Workforce culture– a company’s “values, processes and results” can lead to a “more productive, fair and respectful work environment” and help attract and retain talent. These issues may fall under the heading “Employee engagement, diversity and inclusion”.
  • Labor investment– a company’s efforts to provide its employees with career development and wealth creation opportunities are associated with increased worker engagement and retention, the ability to retrain or develop workers, and job improvements. employee performance and productivity. These issues are related to “labor relations”, but can also have broader implications.
  • Mental health and health benefits– mental health benefits can help workers’ productivity, especially in light of “the increasing prevalence of stress, depression and anxiety”. Health benefits such as paid sick leave can affect job rotation, recruitment and retention, productivity and absenteeism rates. These issues relate to the “Employee Health and Safety” category and may also have more general implications.
  • Alternative workforce (casual and contract work) – the growth of the economy of odd jobs, self-employed contract workers and other alternative workers all have implications for a growing number of businesses and their workforce, both employees and alternative labor. These problems can be taken into account in the general taxonomy of SASB problems.

Although these new concepts have not yet been incorporated into the SASB framework, companies may consider addressing some of these topics in their human capital information to the extent that it is relevant.

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