We find majorities or significant minorities of the largest global corporations collect a variety of human capital (HC) metrics of increasing interest to institutional investors. These averages mask a sharp dichotomy between metrics disclosed publicly and those reported by respondents to an annual survey of nearly 2,000 of the largest firms traded on global exchanges. For example, about half of these companies report the average hours of training they provided to employees annually. But the figure was dramatically higher for respondents, at 84 percent, versus just 18 percent of firms assessed using public reporting. Similarly, while 52 percent of firms publicly report employee fatalities, 96 percent of survey respondents disclosed the metrics, but only 17 percent of publicly assessed companies. Comparable differentials were found across other measures. The findings suggest that investors could gain access to HC data that is material to financial performance if they request public disclosure of information already gathered by a critical mass of large corporations in major markets. However, the reporting differs among regions and countries such as the United States and Great Britain, as well as between large market cap companies compared with smaller ones.
Much attention has been given by pension funds and other institutional investors to governance and in some measure environmental considerations in their investment-related decisions, spurred by either by normative concerns and/or their impact on financial performance. However, very little has been done in the latter terms with respect to what are often termed social considerations, which include work-related matters. This publication represents an effort to begin to remedy that problem.
More particularly, of the many published studies of human capital policies, the paper examines 92 that focus on the links to corporate financial performance. A large majority of the studies – covering a period of two decades and encompassing dozens of countries and industries - reported positive correlations. The paper summarizes key aspects of the research, reviews the methods and approaches they employ, and discusses strengths of and limitations to the findings. Overall, the paper suggests that human capital management can be material to a company’s financial performance. It recommends the kinds of information which investors should seek – among them, about the array of a company’s human capital policies, their relationship to one another, and their link to the company’s business strategy, and measures outcomes and financial impacts – and companies should provide.
Nine companies this month launched a process to test newly-developed Key Performance Indicators (KPIs) to assess reputational risks and operational shortcomings associated with labor and human rights factors in corporate supply chains. Collectively, these companies source goods from 1,755 factories that employ around 1.8 million workers in 62 countries. Once tested, finalized, and implemented, these standardized KPIs could allow interested parties to assess companies’ progress toward reducing labor and human rights risks.
Prepared at the request of the Australian Council of Superannuation Investors (ACSI), this report benchmarks the supply-chain labor and human rights policies of the S&P/ASX 200 (ASX 200) against 2,500 of the largest global companies building on the work of the Project’s previous publication “Benchmarking Corporate Policies on Labor and Human Rights in Global Supply Chains,” (Occasional Paper No. 5) On the whole, the ASX 200 companies lag their peers in other listed markets, with a mere 17% issuing a labor and human rights policy covering their supply chain, versus 35% in the global sample. This trend carries across when analyzing company procedures to implement policies. There is some exception to this pattern for occupational health and safety policies of ASX 200 companies, which were notably strong, which may reflect the impact of strict health and safety legislation in Australia. The largest Australian companies (by market capitalization) also managed to measure up to their global peers on a number of indicators. The majority of ASX 200 firms however paled in comparison to the performance of the global sample
Near majorities of large corporations have labor and human rights (LHR) policies covering their global supply chains, although far fewer have established follow-up monitoring and enforcement mechanisms. LHR supply-chain policies are also close to the norm among European companies, with the United States and Asia lagging behind. These findings are contained in the first study to benchmark LHR policies among the 2,500 companies found on the major stock market indices. The study was done by Pensions Project Senior Fellow Aaron Bernstein and Christopher Greenwald, Director of Data Content at the Swiss firm ASSET4, using ASSET4 data.
This paper explores how pension funds and other investors can obtain data on the long- term sustainability risks posed by the labor and human rights (LHR) activities of global corporations, with a specific focus on supply chains. It should be read as a companion piece to Bernstein's “Incorporating Labor and Human Rights Risk into Investment Decisions" (Occasional Paper, No. 2)
Mainstream investors for the first time are beginning to assess labor and human rights factors as a way of increasing returns and lowering risk as part of a broader movement in the investment world to include corporate environmental, social, and governance (ESG) behavior into portfolio and lending decisions. However, the paper also describes why investment analysis of labor and human rights poses some of the most difficult challenges in the emerging ESG field.
The 2007 negotiations between the United Auto Workers (UAW) and Detroit automakers have focused national attention on a potentially innovative response to the long-term decline in retiree health insurance in the United States. The union agreed that an independent trust called a Voluntary Employees’ Beneficiary Association (VEBA) will assume responsibility for UAW retiree medical care at the three automakers. Other unionized employers now are looking at these so-called defeasance VEBAs as a way to free themselves of burdensome health-care legacy costs. An analysis of the largest one, at GM, suggests that the concept is a second-best option for unions able to retain employer-paid retiree coverage. However, it may be a viable alternative for those unable to fend off unilateral elimination by an employer. Both private- and public-sector unions and employers can draw important lessons from the defeasance VEBA agreed to by the UAW and GM, which will deploy innovative tactics to distribute cost and risk amongst the company, workers, and retirees. More broadly, the new VEBAs illuminate a gaping hole in the federal tax code, which offers few incentives for employees to save for postemployment medical needs even as employers have shifted the responsibility on them to do so. A VEBA is a flexible vehicle that could provide the most tax-efficient savings method for workers whose employer doesn’t offer retiree coverage. However, changes in federal law likely would be required for the concept to become widespread.