What to Know About the SEC’s Interest in Human Capital Management Disclosure

Article Icon Article
July 13, 2022
6 min read
The SEC is expected to introduce new reporting requirements, including key workforce-related metrics, in the coming months.


By Margot Brandenburg, Ford Foundation & Satyam Khanna, Stanford Institute for Economic Policy Research.

Investors, academics, and other stakeholders are increasingly focused on improving corporate disclosure of human capital management issues.

The most innovative American companies often state that their workforce is their greatest source of value. That is reflected in broader market trends, where human capital is increasingly driving corporate value. In 1975, for instance, the market value of intangible assets including human capital accounted for 17% of the S&P500’s value, according to merchant bank Ocean Tomo. By 2020, they represented 90%.

However, SEC rules have not kept up with this reality; the agency’s disclosure regime has traditionally recognized human capital as a cost. In practice, that means investors are unable to distinguish between companies who invest in improving their workforces and those who do not. “Because human capital is included in administrative expenses, not as a stand-alone item, it is plausible that capital markets punish companies that invest in their workers as if those companies had excessive energy bills,” observed Sen. Mark Warner in 2018.

In recent years, investors have asked the SEC to update its rules to add reporting of core human capital management-related items. In 2017, the Human Capital Management Coalition – which includes 36 institutional investors representing over $8 trillion in assets – petitioned the agency to require disclosure of a set of qualitative and quantitative workforce disclosures. And, in 2020, the SEC’s Investor Advisory Committee recommended the SEC study and propose rules enhancing transparency around human capital.

The SEC, under former Chair Jay Clayton, responded by updating its rules in 2020 to include principles-based disclosure requirements, with companies reporting their human capital resources if material. A new study by academics Ethan Rouen, Thomas Bourveau, Maliha Chowdhury, and Anthony Le finds that quantitative disclosures have increased overall since the rule’s enactment but that there is still substantial variation in the quality of disclosures.

Investor and stakeholder interest in these issues remains high. According to Glass Lewis, in 2021, human capital-related shareholder proposals received on average 45% support – up from 28% in 2020. In his annual letter in 2022, BlackRock CEO Larry Fink remarked, “CEOs need to be asking themselves whether they are creating an environment that helps them compete for talent,” pointing to changes in the employer-employee relationship from the Covid-19 pandemic. And last month, a coalition of 50 non-profits and foundations, including the Ford Foundation, sent a letter to the SEC requesting it prioritize a human capital disclosure rulemaking, stating, “Information on human capital management – such as a company’s workforce composition, compensation, health and safety, and diversity practices – is vital to investor decision making.”

SEC Chair Gensler has indicated the agency would build atop its prior work by adding rules for disclosure of certain metrics. Last year he indicated these might include “workforce turnover, skills and development training, compensation, benefits, workforce demographics including diversity, and health and safety.” Specific rules on the subject are expected in the coming months.

Human capital disclosure’s up-front costs are expected to be relatively cheap for companies, since companies already track or report much relevant data. A recent petition from accounting scholars Colleen Honigsberg and Shivaram Rajgopal – along with former SEC commissioners Robert Jackson and Joe Grundfest – called for the SEC to enhance disclosure of workforce spending, which would build off of existing tax reporting. Other indicators like diversity data are already reported to the Equal Employment Opportunity Commission.

Standardized human capital measures may even save companies money, as they will help streamline the information requested by investors, data providers, and other stakeholders. The International Federation of Accountants (IFAC) and Business at the OECD (BIAC) surveyed over 250 regulatory and compliance leaders from global financial institutions in 2018 and estimated that “a piecemeal approach to financial sector regulation costs the global economy $780 billion USD a year.”

Regardless of how the SEC proceeds, U.S. companies who engage in business abroad will need to think more about these issues. The newly formed International Sustainability Standards Board (ISSB), which absorbed SASB standards, and the Corporate Sustainability Reporting Directive (CSRD) in Europe will also be providing new disclosure directives. CSRD and other European regulations will be mandatory and apply to American and other foreign companies doing business in Europe.

Disclosure rules can facilitate the comparison of human capital measures across peer groups and the broader market, enhancing market efficiency. Companies can prepare by taking steps now to better understand their own sources of workforce information – including, for example, those relating to compensation, training, demographics and turnover. And we encourage companies and other stakeholders to engage with the SEC to help them better understand how companies are managing their most important source of strength: their people.



Margot Brandenburg is Senior Program Officer for Mission Investments at the Ford Foundation.

Satyam Khanna is a former ESG advisor at the Securities & Exchange Commission and the SIEPR Policy Fellow at the Stanford Institute for Economic Policy Research.