12 July, 2023 / News
Schroders launches framework for assessing human capital value creation
By Fiona Nicolson
Supported by Saïd Business School and CalPERS
Schroders has launched a framework for assessing human capital value creation, which includes a set of quantitative accounting metrics, which can be used along with qualitative techniques.
The framework enables investors to enhance their understanding of the contribution of human capital management to a firm’s returns and productivity, Schroders said.
It was created with support from the Oxford Rethinking Performance Initiative at Saïd Business School, University of Oxford and California Public Employees’ Retirement System.
Schroders said that “the analysis confirms that human capital is a clear driver of company productivity and profitability, and that companies with durable management frameworks create stronger returns and value for investors.”
The research paper Human Capital Management Research Summary: People are our greatest asset reveals that human capital returns are positively correlated with forward excess returns, over multiple time horizons and across a majority of sectors. It also finds that the outcomes of good human capital management can be defined and measured and indicates why there are structural and cyclical reasons to focus on this.
‘Relevance of people as stewards of value creation’
Angus Bauer, head of sustainable research commented: “This research tells us that investors cannot ignore human capital management in evaluating investee companies.
“As we approach continued economic volatility, our analysis shows that companies with strong human capital management are likely to be more capable of navigating the future effectively. Even as the integration of artificial intelligence across industries evolves, the relevance of people as the stewards of value creation will remain high.”
Nicholette MacDonald Brown, head of European blend, who has been incorporating the analysis within her investment process said: “Unlike environmental factors, which have transparent values, human capital has traditionally been difficult to quantify, especially when looking at the lower end of market cap where data is extremely opaque.
“This framework allows active managers like us to gain greater insights into companies within our investment universe. We can identify those which are leaders and laggards in human capital management to make informed allocation and engagement decisions.”
A part of the Mark Allen Group.