2022 is being called the "first year of human capital disclosure," and it is expected that attention to human capital management will increase, and that the appropriate disclosure of information linking human resources strategy and management strategy will accelerate. This time, let's look at the background that has made such information disclosure necessary.
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Should human resources be something that needs to be managed?
Historically, the general view of human resources has been that of a "resource." Resources are something to be "managed," and the costs associated with that management have been considered a "cost." This is evident in the fact that HR-related departments in many companies are treated as "management departments." However, there is a growing trend to view human resources as "capital," as assets that "create value," and the costs associated with their development as an "investment."
Human resources are the source of corporate value creation and significantly influence the feasibility of business strategies. Therefore, it is increasingly recognized that human resource strategies must be closely linked to business strategies, and that their content should be actively communicated and discussed both internally and externally.
reference:Ministry of Economy, Trade and Industry Human Resources Edition Ito Report
Needs from investors
It is also noteworthy that investors use human capital information as an important factor in their investment decisions. A survey of institutional investors revealed that, as follows, human capital-related information is considered important when making decisions about medium- to long-term investment and financial strategies:
In particular, items that investors expect to be disclosed include "policies for ensuring diversity among management and core personnel," "indicators related to diversity among core personnel," and "policies for talent development and improvement of the internal work environment."
Thus, from an investor's perspective, information on human capital is extremely important when making investment decisions, and it is possible that companies that do not disclose appropriate information may be seen as lacking the accuracy of their valuations.
source:Cabinet Secretariat Guidelines for Visualizing Human Capital, Appendix ①
Disclosure frameworks are being released one after another.
The development and public availability of frameworks for disclosing human capital information, both domestically and internationally, in recent years has contributed to the increased demand for disclosure from external parties. This includes significant institutional changes such as the issuance of ISO 30414 (Guidelines for Disclosure of Information on Human Capital, 2018), the revision of the Corporate Governance Code (2021), the announcement of the Cabinet Secretariat's Human Resources Visibility Guidelines (2022), and the mandatory disclosure of human capital items in securities reports.
I plan to summarize these guidelines and guidance in a separate article.
summary
Human resource strategies are essential information when discussing a company's medium- to long-term management strategy, and it will become increasingly important to explain their actual state to stakeholders through dialogue with investors and various reports. Furthermore, in a situation where the working population is declining and labor mobility is increasing, companies must continue to be attractive to people in order to retain talented individuals for the long term.
Companies need to take early action to create appropriate systems for disclosing information about their human capital.
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