Investors including Scottish Widows, La Française Group and the Local Authority Pension Fund Forum have joined forces to create a $1 tn+ coalition calling on the International Sustainability Standards Board (ISSB) to design international reporting standards on human and worker rights.
In May 2023, the ISSB asked for feedback on where it should focus going forward. The 21-member coalition, brought together by responsible investment NGO ShareAction, has written to the ISSB urging it to prioritize researching human capital and human rights disclosure standards in its upcoming two-year plan.
‘We know workers around the world face exploitation by unscrupulous companies, harming the workers themselves and creating risks for investors,’ says James Coldwell, head of the Workforce Disclosure Initiative at ShareAction, in a statement, saying the ISSB has an opportunity to provide a meaningful reporting baseline on the issue.
‘Tackling these issues can only be achieved when there is transparency around corporate practices – something the ISSB is perfectly positioned to deliver.’
Human capital and human rights
The coalition asks the ISSB to consider ‘how to disclose human capital and human rights information together’, pointing out that, in practice, neither companies nor investors treat the two topics as totally separate areas.
‘By siloing these two highly interconnected topics, the ISSB is not reflecting the reality of market practices,’ writes the coalition. ‘In practice, neither companies nor investors treat human capital and human rights as two distinct, separate areas.’
For example, human rights due diligence processes are used as key tools for identifying labor issues, while concepts such as unionization and modern slavery belong in both categories.
Vincent Kaufmann, CEO of Ethos Foundation, comments on how Covid-19 thrust human capital issues into the spotlight, while ‘the subsequent mass fluctuation it caused in the labor market’ further clarified how crucial the human element is to business success.
‘As the financial materiality of these issues becomes increasingly clear, it is crucial investors have access to comprehensive and comparable social data from businesses to help inform investment decisions,’ Kaufmann says.
Voluntary disclosures
Even as the ISSB considers where to focus its sustainability standards next, in a way that could offer a potentially more uniform approach, more and more companies are voluntarily sharing much of this data.
In the US, more firms have been releasing their Equal Employment Opportunity 1 (EEO1) reports in recent years, while voluntary human capital management disclosures have also become more common.
In his 2022 letter to board members, Cyrus Taraporevala, State Street Global Advisors (SSGA) president and CEO, warned firms that SSGA would vote against companies in the S&P 500 that do not disclose their EEO1 reports. He cited figures as showing that since 2020 the number of companies in the S&P 500 that disclose the racial and ethnic makeup of their board has more than doubled and the number of S&P 100 companies disclosing their EEO1 reports has more than tripled.
In June, Nick Mazing, director of research at AlphaSense, wrote for Corporate Secretary that while ESG mentions on the earnings call were down, proxy statements mentioning a wide range of ESG topics continue to increase.
