NAPF turns focus to value of workforce in company reporting

The report, published this week, comes as part of a rising tide of discussion around ethical, social and governance factors and socially responsible investment in recent months.

Last week, consultancy Mercer launched a report that analysed the financial impact of climate change.

However, the NAPF's report focuses on the more intangible value of a company's workforce and the way such information is reported to the investment community.

Speaking at the launch event last week Joanne Segars, chief executive at the NAPF, said it was crucial to have improved reporting on this area due to the impact of workforce productivity and wider company culture on companies' long-term sustainability and performance. 

Segars said: “There has been much progress over the past decade to enhance the quality of reporting, but both quality and quantity remains significantly lacking.

Businesses are ultimately about people. To say you understand the company as an investor you must understand what is gong on with its people.

Richard Keery, Strathclyde Pension Fund

“Long-term investors are not fully able to understand the risks being taken on.”

William Pomroy, NAPF policy lead for corporate governance and sustainability, and author of the report, said company reporting on human capital was currently “opaque” and the development of a new framework was essential for pension fund investors to have full understanding of all ESG risks.

Pomroy said workforce productivity would be crucial to the long-term performance of equities held in passive investment vehicles, while active managers could benefit from attaching a premium to companies' human capital. 

He said flagging such matters would help make pension trustees "aware of the issues that are potentially material to their investment and therefore can ask the questions of their investment managers”.

"Equally we're trying to get companies to be providing the information back down the chain, so pension schemes should benefit in the round."

Living wage  

The NAPF’s call for further disclosure on human capital builds on a push by schemes, including Strathclyde Pension Fund, The Pensions Trust and the London Borough of Islington Pension Fund, for publicly listed companies to pay their workforce the living wage. 

Strathclyde has pushed hard for the living wage as part of its fiduciary duty to scheme members, a standard already implemented by its sponsor Glasgow City Council.

Richard Keery, investment manager at Strathclyde, said the fund believes in the economic case for paying the living wage and enhanced visibility on company culture.

“We’ve looked at it closely and we [are] quite convinced that remuneration and appropriate remuneration play a major role in various other factors in employment, including retention, motivation and absence,” said Keery.

He added: “Businesses are ultimately about people. To say you understand the company as an investor you must understand what is going on with its people.”

Catherine Howarth, chief executive of responsible investment campaign group ShareAction, said it was "excellent" to see the NAPF taking a lead on this topic.

"It has long been neglected because it falls into the clutch of issues that impact long-term corporate success rather than being a short-term driver of investment returns," she said. 

Howarth said, in addition to its relevance to pension fund returns, ordinary scheme members could relate to issues around human capital based on their own experience in the workplace.

“Who wouldn’t want to know that their pension fund was a champion of smart human resource management and of tackling wasteful discrimination in the workplace?” she said.