As the world slowly opens up to a mask-free reality, we look back on what has made the first half of 2021 a very exciting time for investors, especially those interested in understanding how the pandemic has spurred the two most prominent environmental, social, and corporate governance (ESG) investing themes.
Source: Spencer Stuart, 2021.
Let’s not forget that investor efforts to encourage diversity and inclusion are not limited to the boardroom; shareholders are increasingly pushing for broader disclosures at companies to better assess how companies manage human capital and track their progress in terms of attracting, retaining, and promoting minority employees. One basic workforce disclosure investors are asking for is EEO-1 data, a report that’s already required to be filed with the US government for the vast majority of US companies. This data describes the gender, racial, and ethnic breakdown of company workforces by 10 job categories.
This summer, Parametric is sending letters encouraging S&P 500® companies to make the consolidated EEO-1 data public and asking for an open dialogue on diversity initiatives and disclosures. Doing so would levy minimal cost, since the data is already collected, and would be merely a first step toward encouraging better human capital disclosures.
Encouragingly, more progress on diversity (and more broadly human capital) disclosures might be on the horizon. SEC chair Gary Gensler has stated publicly that human capital disclosure is one of his top priorities, and companies should expect more public scrutiny of their efforts, as well as new regulatory requirements.
The bottom line
Never have we seen such interest in all things ESG. The pandemic hit a reset button and prompted people to focus on what they see as most important. With this shift in mindset, the momentum demanding real action is gaining strength. But before we can witness real action, companies need to be able to quantify these issues and track their progress, and that’s exactly why so much effort is currently being spent on raising the bar when it comes to ESG disclosures.
References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, a recommendation to purchase or sell such securities. It should not be assumed that any of the securities referenced will be profitable in the future or will equal their past performance. All investments are subject to risks, including the risk of loss.