“Companies that invest in their workers and effectively leverage the value of their human capital are more likely to succeed in the long term,” Norges Bank Investment Management (NBIM) said at launch. a new paper outlining its expectations around human capital. “Human Capital Management (HCM) will be a priority in our ownership work going forward.”
NBIM, which manages the Norwegian government’s $1.3 billion pension fund, revealed record first-half losses yesterday as its equity return hit -17%. The fund holds an average of 1.3% of all listed companies globally, with holdings in 9,338 companies at the time of writing.
Now, NBIM has released an expectations document setting out what it wants to see from these companies on the increasingly important issue of HCM – something it sees as having the potential to increase or hinder value. .
Noting the rapid pace of change around human capital issues, the fund manager said: “New technologies, including artificial intelligence and automation and related alternative workforce models, such as hybrid working arrangements, seasonal and temporary workers and the gig economy, present new opportunities and risks for businesses.
“At the same time, changing societal pressures, growing wealth and income inequality, and new platforms that amplify the voice of workers and provide a window into corporate culture and practices place the management of the human capital of companies under greater scrutiny.The roles and responsibilities of companies towards not only direct employees, but also those in their supply chains, continue to evolve.In this context, a proactive HCM and nuanced, as well as enhanced monitoring and reporting, are increasingly relevant.
Since human capital covers a wide range of themes that businesses will approach in a variety of ways, NBIM emphasizes that as an investor, it seeks to understand the different approaches businesses have to HCM, rather than adopting a unique approach.
Taking into account how many of these issues essentially offer a “social license to operate” as well as “broader market legitimacy,” NBIM says it recognizes that the strategies and priorities for managing the many issues covered by the umbrella of human capital are likely to reflect a specific business. terms.
However, the fund manager also highlights the risks that companies face if they do not invest in human capital.
“Failure to develop appropriate HCM strategies can lead to significant financial, legal and reputational risks for businesses,” it says.
The reporting challenge
As an example of the broader benefits that a focus on many human capital issues can bring, NBIM states that “the case for innovative and robust policies to promote diversity, equity and inclusion transcends the direct financial or risk mitigation benefits at the enterprise level such as policies could bring.
“We believe that all market players will benefit from the enhanced legitimacy of a diversified, fair and inclusive economy. Likewise, we believe that investments by companies in the development of their own workers and those in the supply chain are likely to have spillover effects on the economy. Such investments will indirectly support broader economic growth and potentially reduce the cost of labor displacement and retraining associated with the transition to a low-carbon economy and other societal changes,” says the fund manager.
It also says companies “fail” to provide investors with a clear picture of their human capital investments through their corporate reporting, although NBIM notes “continuing “evolution” in this area “accounts given the magnitude of the issues and measures that can be linked to a company’s investments in human capital and the various approaches that can be appropriately adopted.
The fund manager sets his expectations across four themes, stating that companies should:
- Integrate HCM into policies and strategy
- Integrate material HCM risks into risk management
- Disclose material information related to HCM
- Engage responsibly and transparently.