NAPF: Why employees are a marker of companies' long-term success

But as the National Association of Pension Funds argues in a new discussion paper, 'Where is the workforce in corporate reporting?', the workforce rarely makes it past the executive summary of corporate brochures, and remains the missing piece in the corporate reporting jigsaw. 

Pension funds are long-term investors with a clear interest in promoting the lasting success of the companies they have backed.

Transparency and meaningful disclosure by companies is essential for enabling informed investment decisions.

Creating a better understanding of the significance of employees to a business can surely provide insights into the drivers and sustainability of growth.

However, our members still struggle to find any clear or consistent reporting with respect to investee companies' workforces.

While the past few years have seen significant improvements in the reporting of environmental and governance issues, when it comes to social concerns the ‘S’ is often the forgotten component of the ESG acronym.

While the past few years have seen significant improvements in the reporting of environmental and governance issues, when it comes to social concerns the ‘S’ is often the forgotten component of the ESG acronym

Both our members and their underlying scheme members have told us that workforce issues are more important for investors than executive pay and many other more traditional topics.

Among those aged 18-34, pay and conditions for employees were ranked 80 per cent higher than executive pay and more than 50 per cent higher than environmental impact.

Given this demand and the reams of academic evidence demonstrating the financial materiality of these issues, why do we not see clearer reporting in this area?

Companies commonly say they would provide more information on their workforce if their investors asked for it, while investors say they cannot ask the right questions without information in the first place.

So now is the time to start making progress in this area.

In the spirit of ‘what gets measured gets managed and what gets reported gets done’, our paper suggests a number of metrics that companies should disclose, as well as some they should consider reporting on.

The four areas we identify for better transparency are: the composition; stability; skills and capability; and motivation and engagement of the workforce.

We intend to host a series of roundtables later this year to discuss how more progress can be made, and we will be incorporating the initial conclusions into our corporate governance policy and voting guideline.

We look forward to engaging with members and the wider pensions industry in this important debate over the coming months.

Will Pomroy is policy lead for corporate governance and stewardship at the NAPF