Norges Bank Calls for HCM Disclosure: Turnover, Diversity, Total Cost

Norges Bank, the world’s largest sovereign wealth fund and the central bank of Norway, recently released a new statement on its increased expectations of companies with regard to human capital management, including disclosure. This is not the investor’s first foray into corporate governance—in 2017, it released a paper explaining its views on executive compensation, famously stating that performance awards were rife with flaws, and recommending cash plus restricted stock held for 5-10 years (even beyond employment).

Norges Bank’s “expectations” for human capital management mirror those of the Human Capital Management Coalition (though it is not a member) and call for the following:

• Companies should integrate HCM risks into risk management, including DEI, pay equity, health and safety and “alternative work models” such as AI, automation, gig workers, etc.
  
  
• Companies should disclose material information related to HCM in line with best practices and international standards such as SASB. This is an interesting point given that the SEC will shortly be releasing new rules on HCM disclosure that are not particularly likely to align with SASB. Norges calls for the following specific metrics:
  
  
  • Direct employees, supply chain workers (presumably not employed by the company), and seasonal, part-time and temporary workers
    
    
  • Number of workers, total cost of workforce, turnover, and disaggregated diversity
    
    
  • “Where appropriate,” year-on-year comparison and assessment of performance against targets
    
    
• Companies should engage with workers, facilitate employee voice, ensure robust grievance and “whistle-blowing” mechanisms, and engage with policy makers and regulators specifically as part of human capital management.

Norges notes that as a long-term investor, it considers human capital a critical part of value creation but is dissatisfied with current treatment of human capital on the balance sheet. This echoes the recent petition of the Working Group on Human Capital Accounting Disclosure, which called for new rules to improve investor understanding of the value of company investment in human capital.