By Ariel Babcock CFA, Allen He CFA, and Devin Weiss 

Intuitively, many companies understand the importance of strategically investing in their employees. Past academic research has found employees contribute materially to the long-term value creation of a corporation. For instance, the “100 Best Companies to Work in America” had significantly higher stock returns than industry averages. Higher firm investment in intangible assets is associated with higher revenue, and strong relationships have been demonstrated between employee satisfaction, productivity, and loyalty to the consumer base.

Given the links between employee support and firm performance, investors have cast increasing importance on companies’ disclosures of human capital metrics. In the U.S., the Securities and Exchange Commission has begun to regulate the matter. With the modernization of Regulation S-K, the SEC has signaled to companies the importance of keeping track and disclosing vital human capital metrics. This move has the potential to shake up the disclosure landscape amongst public companies in the U.S., and it is the first time in thirty years that these requirements have undergone significant changes.

Despite the growing momentum around human capital metrics, disclosure coverage has remained sparse. Prior research has identified six metrics specific to the measurement of human capital that institutional investors need to make informed investment decisions. And while companies have shown meaningful improvement in this area over the past several years, the current disclosure rate among members of the MSCI ACWI remains low, with none of the six metrics topping 50%:

Average disclosure rates by human capital metric ¹