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ESG Investing: Why the Human Element Matters More Than Ever

In a vastly more competitive job market where companies are vying to recruit talented employees, a company’s practices regarding their employees are more important than ever. It’s an element of ESG that has seen a much greater focus since the onset of the pandemic, and State Street Global Advisors believes that a greater sustained focus on employee satisfaction and growth opportunities will ultimately make a business more successful, according to a recent white paper.

Over 60 of the biggest companies within SSGA’s portfolios in the Americas, EMEA, and APAC regions were surveyed, with over 185 engagements regarding human capital management best practices. Companies highlighted for best practices regarding employees included IBM, Target, PepsiCo, Compass Group, and many others.

Companies reported that because of the pandemic and an increasing focus on the human element and racial equity in companies, human capital management and diversity, equity, and inclusion were top talking points in most board meetings in 2021. Some companies have added a human resources representative to their boards as well to ensure that there is clear representation and communication regarding employee satisfaction and business practices.

“Against the backdrop of the pandemic, a tight labor market, and the ‘Great Resignation,’ employers cannot afford to take their employees for granted. Companies are increasingly dedicating resources to attracting and retaining quality talent, which we hope is not a short-term fix but rather indicative of a more sustainable shift,” write the authors of the paper.

Human Capital Management Needs to Be a Measurable Metric

SSGA anticipates that the focus on human capital management is something that businesses will increasingly need to be able to speak to in how it contributes to their long-term strategies. This will require being able to both measure and manage KPIs related to human capital management. To this point, companies are beginning to identify elements of their human capital management that set them apart and make them more attractive to potential employees over their competitors.

Companies that are less transparent regarding their workforces’ composition and scale, including a breakdown of full-time, part-time, and contingent labor, ultimately end up obscuring risks to investors. A key metric that has also become increasingly important to investors is the turnover rate for a company, given the labor market environment. How supported and heard employees feel, as well as how fairly they are compensated, all are parts that contribute to their overall happiness with a company and how willing they are to stay.

“Human capital is a material risk and opportunity for companies across all industries. We are hopeful that the increased emphasis on effective human capital management since the beginning of the pandemic — including more regular opportunities to solicit employee input and more frequent board-level discussions on human capital management challenges — will be implemented permanently going forward,” write the authors.

State Street Global Advisors offers a number of ESG-focused funds with a variety of strategies and exposures. Funds include the newly launched SPDR S&P SmallCap 600 ESG ETF (ESIX), the SPDR SSGA Gender Diversity Index ETF (SHE), and the SPDR S&P ESG ETF (EFIV).

For more news, information, and strategy, visit the ESG Channel.

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