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Regulation

Investor group calls on SEC for more disclosure on human capital

Updated with correction

The SEC should incorporate human-capital management into its corporate reporting and disclosure regime, the agency's Investor Advisory Committee said Thursday.

The committee voted 14-6 to approve a recommendation from its Investor-as-Owner subcommittee, which found that "companies are increasingly dependent on their workforces as a source of value creation. Indeed, for many of the most dynamic companies, human capital is their primary source of value."

As the U.S. economy becomes increasingly based on intellectual property and human capital rather than industrial production, regulations should evolve to incorporate these intangible assets, the subcommittee said in its report. "Human capital is increasingly conceptualized as an investible asset."

The recommendation encourages SEC officials to learn more from investors, issuers and others about what kind of disclosure is already required under other regulatory regimes.

In 2018, institutional investors and other members of the Human Capital Management Coalition petitioned the SEC to begin rulemaking to require human capital disclosures from public companies. The subcommittee said in its recommendation that the valuation of firms with few hard assets "is increasingly difficult" when based on current public SEC-mandated disclosure because the information is not consistent, verified, or comparable across companies.

SEC Chairman Jay Clayton told committee members before the vote that moving forward on this issue, "We should not attempt to impose rigid standards or metrics for human capital on all public companies. Rather, I think investors would be better served by understanding the lens through which each company looks at its human capital."