Senior Sustainability and ESG Analyst
Heather Smith is Senior Sustainability and ESG (environmental, social and governance) Analyst at Impax Asset Management. She discusses her engagement work on human capital management-related matters in this Q&A.
Q. What is human capital management and why is it an important focus for Impax?
Human capital management (HCM) encompasses a company’s efforts to compete for, develop and retain skilled talent. This will typically be through development opportunities, benefits that provide for flexibility and wellness, and an environment in which there is open communication. We view human capital as a critical component of a company’s competitiveness and value creation. After all, effective management and oversight of human capital is linked with higher employee motivation, greater employee satisfaction, retention and productivity, as well as reduced voluntary turnover, and the related costs.
Through our engagements, we seek to gain a greater understanding of how companies are managing and thinking about human capital issues. Strong management of human capital is especially relevant in the context of a tight and evolving labor market, and it has been one of Impax’s four strategic engagement priorities since 2021.
Q. Why has human capital management risen up the engagement agenda?
The companies we engage with increasingly recognize that being transparent around their HCM efforts helps talent recruitment and retention. Human capital engagement has always been an important aspect of our work, but it has never been at the forefront of our discussions with companies the way that it is today.
There have been three main catalysts for this change. The first was the onset of the COVID-19 pandemic, which has rapidly transformed the nature of the labor market and the way people work. Companies shifted to remote work, enhanced benefits, provided for hazard or bonus pay and additional paid time off to manage the acute stage of the crisis. Short-term responses to the pandemic became more permanent as the challenges facing workers became more clearly understood and employees’ expectations around wages, benefits and flexibility had changed.
“We see an opportunity for companies to create lasting change in the workplace that addresses the needs and improves the well-being of all employees.”
The second catalyst was the murder of George Floyd by the Minneapolis police in 2020, which provided a stark reminder of the systemic, structural barriers that have hindered progress toward greater equity. The resulting calls for social justice across the US elevated the conversation around equity, diversity, and inclusion (E,D&I), particularly as it pertains to race and ethnicity, and made clear that companies have a role to play in addressing inequities by examining the impacts of their own policies, programs and products/services on their workforce and communities. The third catalyst, in what has been termed the ‘Great Resignation’, has been the trend towards more workers voluntarily choosing to leave their jobs and, in many cases, the labor force altogether. This is exacerbating a tight labor market characterized by a skills shortage and wage inflation.
Q. Where do you see opportunities for companies?
In the face of these dynamics, we see an opportunity for companies to create lasting change in the workplace that addresses the needs and improves the well-being of all employees.
We believe companies should be proactive and flexible in how they approach human capital and their employees. Best practices are still evolving and developing, and companies have an opportunity to distinguish themselves from peers. Based on our engagement outreach, it seems that companies are really trying to understand the needs and experiences of their employees; they are engaging with their employees more frequently and through different means of communication. Companies are shifting their focus beyond wages and benefits, to a more holistic look at employee well-being and the needs of specific employee populations. For the first time, mental health and wellness have come up in a couple of recent company engagements. Companies are talking about these issues with their employees more openly now and are encouraging employees to take advantage of the resources that they’ve put in place.
Q. Looking ahead, how do you expect human capital to evolve as an engagement theme?
In the months and years ahead, I think we’ll continue to see greater disclosure and transparency around human capital because so many stakeholders are interested in these topics, and it is crucial to business success. Regulators have also taken an interest; it is anticipated that the SEC will propose rulemaking to enhance public company disclosures on HCM in 2022.
“Investors will continue to increase their expectations around human capital reporting and hold companies accountable to the commitments they’ve made”
I look at awareness in the marketplace today around climate change, and how the ramifications of climate change have become clearer and how climate-related reporting has developed. I think we’re on a similar trajectory with human capital and social issues more broadly. While some investors like Impax have always been cognizant of the importance of human capital, we’re now seeing others more attuned to its importance.
This was evident during the 2021 proxy season, when shareholder proposals related to social issues substantially increased over prior years. Not only did we see more proposals calling for reporting on workforce demographics, sexual harassment policies, racial justice and gender and racial pay equity, but we also saw more support for them from other shareholders. Going forward, I anticipate that investors will continue to increase their expectations around human capital reporting and hold companies accountable to the commitments they’ve made. Last year’s proxy season was unprecedented, and I think these social issues will continue to be a focal point for investors in 2022 and beyond.
The views, opinions, and forecasts included or expressed herein are as of the date indicated and are subject to change without notice. You should not assume that such information, views and forward-looking statements would remain the same after the date indicated.
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Expiration Date: 7/23