Publication | ThinkSet
Want to Put the “S” in ESG? Start With Human Capital Measurement
Stakeholders are increasingly pushing for human capital disclosures. Here’s how to measure them
When it comes to measuring environmental, social, and governance (ESG), carbon is relatively easy to quantify. Codes of conduct, board composition, and other governance factors—also fairly tangible. But the “Social” part has long been trickier to gauge.
How does one measure community engagement? Progress toward social justice? Or more broadly, “relations between a company and people or institutions outside of it,” as S&P describes it? It’s no wonder that 51 percent of investors in one survey found the S to be the most difficult to analyze and embed in investment strategies.
That’s starting to change, particularly as stakeholders recognize the growing impact of human capital—the economic value of an organization’s people—amid our ongoing shift to a knowledge economy. In fact, when measured by the number of shareholder resolutions, labor and equal employment opportunity was the top ESG issue from 2020 to 2022.
Regulators are following suit. The Securities and Exchange Commission (SEC) is expected to propose rules for human capital disclosure this year. As a result, management must be prepared to make reporting more accurate.
But these disclosures aren’t just about avoiding risk. Effectively measuring human capital—and painting a clearer picture of how a given organization creates value—makes financial sense while supporting broader ESG goals.