Policy-makers interested in boosting organisational sustainability and productivity should place more emphasis on human capital reporting when they are considering firms’ external disclosure requirements.
This was a central message from the CIPD’s recent responses to the consultations from the International Sustainability Standards Board (ISSB) and the UK Department for Business and Trade (DBT) on human capital and non-financial reporting more widely.
Contributing to global sustainability
The UK Government has committed to following global sustainability standards being developed by the ISSB, so consultation on future agenda priorities is likely to have significant implications for corporate reporting for publicly listed firms in the UK.
The CIPD drew on discussions with members over the summer, our own research and wider evidence to respond to the ISSB consultation. Among other areas, the ISSB’s consultation asked for specific views on which of the following areas of human capital reporting it should prioritise:
- worker wellbeing (including mental health and benefits)
- diversity, equity and inclusion
- employee engagement
- workforce investment
- the alternative workforce
- labour conditions in the value chain
- workforce composition and costs.
Our response pointed out that if the ISSB’s focus were on developing standards, which might have the greatest impact on value creation, then a focus on workforce investment (including skills) and employee engagement might be the priority. But external reporting on workforce investment is perhaps the least developed in practice and so may be more challenging for firms to report on, at least initially. For example, the CIPD’s report How do companies report on their most important asset found that only 37% of FTSE 100 firms reported their number of apprenticeships and internships, 35% disclosed hours of training, and 16% disclosed the cost of training. Only 11% provided data on their internal hire rates, an important indicator of how well companies train and develop staff.
CIPD view on ISSB’s approach
However, if the ISSB’s approach is more pragmatic, based on building the standards that are easiest for companies to meet, then our response suggested the starting point should be workforce composition and cost. This would be a foundation for reporting on the other areas of human capital.
The ISSB also asked for input on what its future projects should be, including one on human capital reporting, which the CIPD supports.
We would like to see the ISSB:
- Implement its existing standards first (general framework and climate)
- Work on new projects including human capital reporting.
There would seem to be some potential for confusion and overlap between climate reporting on the just transition and human capital reporting. Our response made clear we would prefer to see issues such as equality, diversity and inclusion dealt with under human capital reporting standards, for example. We also highlighted that key areas of human capital management are critical to organisations’ transitions to net zero operations, citing our research report Putting people professionals on the road to net zero. This highlighted that workforce planning, change management, and skills development are integral to how well organisations are able to move towards net zero.
Social reporting to drive productivity and growth
Many similar themes were covered by the Department for Business and Trade’s call for evidence on non-financial reporting on environment, social and governance issues. Our response emphasised the need for DBT to recognise the value of improving the quality of social reporting in driving productivity and growth in the UK economy.
Our response cited evidence on links between enhanced people management capability and improved outcomes on employee engagement, wellbeing and organisational performance. Improvements in reporting could assist investors to better understand differences in the quality of management at different companies and to allocate more capital to higher performers, or those with the most potential to improve performance.
Better reporting on workforce risks could also enable investors to better understand the potential risks faced by the company, the ways in which the company is seeking to mitigate those risks, and how well its approach compares to its competitors.
At the same time, this would encourage companies to better understand and manage their own risks, which should in turn improve their performance.
Looking ahead, as policy-makers respond to these consultations and take steps to progress legislation and guidance on ESG reporting, the CIPD will continue to engage members and ensure their views are helping to inform policy-making in this area.
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