Investor action on decent work would receive boost from SEC-mandated disclosures

In September, the Securities and Exchange Commission’s (SEC) Investor Advisory Committee discussed the need for companies to disclose more information on their employees and the benefits they provide.

The PRI has long called for improved human capital management (HCM) disclosure, as set out in our recent report on decent work. There is now a strong signal that the SEC will mandate HCM disclosure metrics, rather than rely on companies to voluntarily publish information, which largely leads to boilerplate and limited disclosure. Any such move from the SEC would be welcomed – and has been driven by – investors and beneficiaries.

Why do we need more transparency from companies?

Over the past two years, the pandemic has focused attention on the vulnerable and precarious working conditions of millions of workers. Our recent report set out how investors can help to ensure decent work at their investee companies, including establishing minimum safeguards, framed by the International Labour Organization’s core conventions and the Universal Declaration of Human Rights.¹ The safeguard expectations for workers are: 

• social dialogue and worker voice;
• equal opportunity and treatment;
• a living wage; and
• benefits, safety and social protection.

The SEC is in a unique position to require companies to disclose information relating to these minimum safeguards, which would be a necessary first step towards more effective investor action to address decent work.

Support for decent work and transparency

Increased employee-related disclosure is being driven by beneficiaries, investors, and the increasing need for a just transition.

When it comes to the public, a recent survey found that 85% of Americans support company transparency about their impact on society, and 87% support federally mandated disclosure on workforce-related issues.² 

This recognition of the need for businesses to consider the impact they have on their workforce and act appropriately crosses party lines. A recent Edelman survey found that regardless of political party affiliation, US workers are more likely to work for corporations that publicly support social issues such as access to healthcare, human rights, racial justice and economic inequality. In the same survey, 69% of employees indicated that a business’s societal impact is a strong consideration or could even be a deal breaker when considering a job.

Momentum for more disclosure is also coming from investors, who are increasingly considering employee-related information in their investment processes. In our recent project on human capital management,³ signatories recognised that a company’s workforce is a key driver of value. At a portfolio level, opportunities to enhance operational performance, reduce reputational risk and create a healthier and more productive workforce can be achieved by addressing decent work factors.

Furthermore, tackling system-level issues, such as inequality, is of growing importance for long-term, universal asset owners who are unable to diversify away such risks. Regulatory momentum is driving focus on the just transition, which addresses the social and physical impacts of transitioning to a low-carbon world. The recent passing of the Inflation Reduction Act underpins this sentiment and brings to the fore the social dimension of the climate transition. There is increasing awareness that a just and equitable transition for workers and of the climate go hand in hand, and together they impact the economy as a whole. 

Decent work for all

Across the board, there is strong support for minimum safeguards at work and access to benefits.

For example, employees want access to affordable health care⁴ and paid medical leave.⁵ However, efforts by Congress to create a universal paid family and medical leave program have stalled. Instead, workers must navigate a patchwork of state laws, or receive sick leave benefits that are determined by their employer. As a result, around 33.6 million people – or 24% of civilian workers – in the US did not have access to paid sick leave as of 2020. There is evidence that those who are paid more have more access to benefits: in 2019, 92% of workers in the top quarter of earnings, and only 51% of workers in the lowest quarter, were provided paid sick leave.⁶ Without paid sick leave, employees may put off critical care, or be forced to sacrifice critical income, both of which lead to an inability to save and invest and income volatility.⁷

Access to a living wage is another decent work minimum safeguard that workers expect companies to uphold. A recent Just Capital survey found that 84% of Americans believe that large companies have a responsibility to pay full-time workers in frontline jobs enough to make ends meet, and 87% believe that companies have a responsibility to pay frontline workers enough that they do not have to rely on public assistance. There is strong support for companies to provide quality, affordable health insurance to all adult workers, including part-time workers (84%) and to match employee contributions to retirement savings plans (74%). 

Importance of quantitative data

Despite a clear mandate from working Americans, the lack of meaningful data⁸ in the US linked to decent work has made it difficult for investors to prioritise investment activities such as stewardship and engagement with policy makers to address decent work issues. Available data has largely been focused on success stories, rather than quantitative metrics that provide comparable information about the treatment of workers and the impact of company policies.⁹ A limited number of metrics, for example those related to health and safety, are currently being disclosed by a wide set of companies; therefore, investor efforts have largely centred on these topics. Mandatory and standardised quantitative and qualitative disclosure would help broaden investor understanding of human capital management.  

Whether a company ensures decent work safeguards can have an impact on companies’ financial outcomes and the portfolio returns for investors. By requiring companies to disclose more human capital management information, the SEC can support employee and investor efforts to identify and address decent work issues across investment activities. All efforts should be underpinned by international human rights standards, robust human rights due diligence and aligned with the UNGPs.

The PRI blog aims to contribute to the debate around topical responsible investment issues. It is written by PRI staff members and occasionally guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view.