Legal Update
Mar 5, 2024
2023 Human Capital Disclosure Report: In Betwixt and Between
Welcome to our third annual Human Capital Disclosure Report. As our prior Reports have done, this year’s report offers general and specific industry insights of SEC-required human capital management (HCM) disclosures. Our “Employers’ Perspective” touches upon discrete HCM topics that are either being challenged or represent a rising tide that are poised to reshape key elements of managing talent while offering opportunities and creating new risks. Finally, we provide a look ahead.
As our Report shows, human capital covers a myriad of topics under the ESG (environmental, social, and governance) umbrella, chief among them is diversity, equity and inclusion (DEI). Since 2020 when ESG rushed into the mainstream and social events placed a renewed focus on DEI, both HCM broadly and DEI specifically became intertwined with an ESG strategy. In addition, during the last three years, depending on where a company sits within the ESG ecosystem, ESG has moved from somewhat of a darling term that advances profit and purpose to a shunned term with potentially no meaning at all.
In 2023, political headwinds, state laws and court challenges sought to deter ESG—and most notably—DEI efforts. This was juxtaposed with global regulators making strides to advance ESG accountability and transparency with mandatory requirements that have global reach, such as the EU Corporate Sustainability Reporting Directive (EU CSRD), which can create particular challenges for multinational companies. The EU CSRD reaches many non-EU companies with extensive disclosure across the ESG landscape, including on HCM matters.
In light of this, we found many of our clients and the marketplace in betwixt and between triggering a step back to reassess and realign with their purpose—particularly as businesses continued to traverse inflationary concerns and significant geopolitical events. What we did not see, however, was a willingness to change course on ESG and related HCM efforts. This reflected a movement from idealism to realism and a look beyond a term that can sometimes be seen as a political agenda versus a framework that offers ways to build resiliency among stakeholders that is relevant to the business.
2023 also did not reflect a holding back on SEC disclosures, which are focused on what is material for the investor audience. As a refresher, the SEC requires publicly listed companies to provide:
(ii) A description of the registrant’s human capital resources, including the number of persons employed by the registrant, and any human capital measures or objectives that the registrant focuses on in managing the business—such as, depending on the nature of the registrant’s business and workforce, measures or objectives that address the development, attraction, and retention of personnel.[1]
With a principles-based approach to disclosures, companies continued to exercise their discretion as to what was material and relevant to their business. With this background, we begin our report with general insights, followed by our specific industry insights.
[1] SEC, Final Rule: Modernization of Regulation S-K Items 101, 103 and 105 (August 26, 2020) at 125, available here: https://www.sec.gov/rules/final/2020/33-10825.pdf.