As the investor community takes its seats for two days of engagement around the Utility Week Investor Summit “Aligning customer, environmental and financial priorities”, Energy & Utility Skills Chief Executive Nick Ellins comments on its focus on environmental, social and governance (ESG) reporting, combined with the acceleration of human capital reporting in 2020 and a new study by the Financial Reporting Council. The report, entitled ‘Workforce-related corporate reporting’, highlights again the growing investor demand for increased transparency to ensure workforce resilience.
The Financial Reporting Council (FRC) promotes transparency and integrity in business, regulating auditors, accountants and actuaries, and setting the UK’s Corporate Governance and Stewardship Codes. The FRC works with the Department for Business, Energy & Industrial Strategy. In its latest report, it advises that, while requirements to report on workforce-related matters have existed for a number of years, new regulations have resulted in a renewed focus and there is an increasing appreciation of the value that the workforce brings to the success of a company and the importance of effective workforce engagement.
The FRC report states “Investors want to understand how the workforce creates value, how that value is maintained and what risks and opportunities may arise in the future.”
“The investors themselves are also under pressure to report more fully on environmental, social and governance matters under new Financial Conduct Authority rules as a result of the Shareholder Rights Directive and the revised UK Stewardship Code. Mandates from asset owners are also increasingly referring to such matters, which is another reason for investor calls for more reporting in this area.”
The report goes on to explain that despite regulatory focus over recent years and increasing company and investor interest, there remains a lack of consistent disclosure on workforce matters.”
This is a point already made loud and clear by the 130 plus institutional investors worth $15 trillion under management that have signed the Workforce Disclosure Initiative (WDI). What started as a call for fairer jobs, has grown significantly as investors become ever clearer that most decisions and actions that bring them sustainable returns over the longer term, rely on human capital.
Aberdeen Standard Investments previously advised for the WDI “Our attention on human capital management and labour issues has significantly increased over the recent years. We consider these issues important, not just from an ESG investment perspective as a socially responsible investor, but also in respect of their link to sustainable business performance of companies, which ultimately will have an impact on shareholder value. This attention is only going to increase as more meaningful workforce data becomes avail-able and more companies start to take human capital management seriously as a key driver of value creation.”
The Financial Reporting Council and Workforce Disclosure Initiative are both crystal clear that a gap remains between the reporting investors are looking for and what is being disclosed. Investors are seeking a more basic understanding of the composition of the workforce, but also an indication of whether the workforce is a strategic asset and how this relates to longer-term value creation.
Nick Ellins commented:
“The Utility Week summit over the next 2 days provides a simple test. Will investors and asset owners coming together to look at ESG reporting and infrastructure resilience risk speak up about the vital human capital that powers the entire business model or focus on short-term headlines of increased infrastructure investment, tough regulatory settlements, reduced dividends and Competition & Market Authority referrals.”
“Why should utility stakeholders take the broader view? We can all talk about achieving resilient infrastructure, but unless you have the people and capabilities to make it resilient, it’s a bit of an arbitrary point.”
“The Office of National Statistics evidence shows the UK has its tightest labour market conditions ever and all four UK nations and all major UK industries are reporting significant skills gaps. HM Treasury reports we are at economic full employment and the Covid-19 incident is shining a harsh spotlight on what impacts can happen to employers and sectors when the workforce you need simply can’t be accessed. Trusted commentators such as the Chair of the National Infrastructure Commission, Sir John Armitt, have also made clear to the APPG Infrastructure in February that “At present, there is an insufficiently joined-up approach to infrastructure skills development in the UK, with a wide range of responsible bodies operating across different geographic and political boundaries. The human capital aspects of the National Infrastructure Plan for Skills need to be refreshed to help ensure our pipeline of future workers is adequate for the challenges ahead.”
“What this FRC report shows investors yet again is the importance of companies articulating how the workforce contributes to the success of their business model, what the risks and opportunities are, and how they measure the success of their strategy through reliable, transparent metrics. Its publication is very timely for the Utility Week Investor Summit, to discuss whether how we all work now brings a joined up approach to accessing the vital human capital needed. The outcomes will be instructive.”
Find Out More
- Financial Reporting Council website https://www.frc.org.uk/
- Financial Reporting Council report
- Workforce Disclosure Initiative https://shareaction.org/wdi/
- Our previous related articles https://www.euskills.co.uk/2019/07/25/a-strategic-asset-that-can-walk-out-the-door/ and https://www.euskills.co.uk/2019/05/16/investors-and-the-fourth-bottom-line-human-capital/
- Sir John Armitt quote and our additional article https://www.euskills.co.uk/2020/02/13/there-is-an-insufficiently-joined-up-approach-to-infrastructure-skills-development-in-the-uk/