The Advisors' Blog

Norges Bank Investment Management – which operates Norway’s massive sovereign wealth fund with more than 9300 portfolio companies globally – is providing new guidance to companies – specifically, boards – on its expectations for human capital management, including pay equity.

The 7-page expectations were published August 17th and are part of a series of expectations on topics including biodiversity, climate change, tax transparency, human rights, water issues, anti-corruption and more. While Norges is careful to not prescribe a specific HCM approach, they also make it clear that they view HCM and positive treatment of workers as important to fund returns – which depend on the success of the market as a whole. You can feel “double materiality” at work here – a concept that has traction in the ESG space due to EU regulations (here’s an excellent 2-part explainer on PracticalESG.com, written by our Advisory Board member Donato Calace).

The investment manager also observes social-related HCM trends that are elevating this issue’s importance to financial results: Artificial Intelligence, automation, alternative workforce models (hybrid, temporary, seasonal, gig), societal pressures, inequality, platforms that amplify worker voice, and supply chain issues. Boards should be considering these risks & opportunities and be prepared to discuss them.

Here’s a summary of the key expectations:

– Integrate human capital management into policies and strategy:

– Adopt a human capital management strategy appropriate to your business, with board accountability for its development & implementation.

– Have a proactive and structured approach to promoting DEI across the workforce and, where relevant, the supply chain.

– Have a zero-tolerance policy against all forms of discrimination, violence and harassment, and related trainings.

– Ensure that workers are paid fair wages sufficient to ensure a decent standard of living.

– Offer opportunities for training and professional development, including, where appropriate, lifelong learning and re-skilling.

– Companies that rely on alternative workforce models should ensure their human capital management strategies include this workforce and should account for any material differences relative to the approach taken with direct employees.

– Integrate material human capital management risks into risk management:

– Identify and incorporate material human capital management risks in a robust and integrated risk management framework – where relevant, include clearly defined targets and timelines.

– Integrate DEI and health and safety systematically into risk management frameworks to ensure equitable treatment and risk mitigation in operations and relevant parts of the value chain.

– Have and be open about systems to actively monitor and manage pay equity, including clear definitions and indicators of pay equity and relevant metrics and targets used to measure progress.

– When considering or using new technologies or alternative workforce models (AI, automation, hybrid or gig workers), be particularly aware of related risks and take steps to address these risks.

– Disclose material information related to human capital management:

– Report publicly on your human capital management strategies, policies, processes and risks in a manner appropriate to your business model and operational context. Reporting should be aligned with emerging best practices and international standards, such as SASB/ISSB and GRI, as well as relevant regional disclosure frameworks.

– Provide sufficient context in disclosures to enable investors to assess your HCM-related investments, opportunities and risks. Reporting should cover both direct employees and other categories of workers, such as those in the supply chain and seasonal, part-time and temporary workers.

– Disclose core information on your workforce – such as numbers of workers, total cost of workforce, turnover, and diversity data, as well as relevant industry-specific metrics. Reporting on diversity-related measures should be disaggregated by appropriate gender or minority groups and employee categories.

– Be transparent about how you measure the effectiveness of your HCM strategies. Where appropriate, reporting should use metrics that enable year-on-year comparison and assessment of performance against targets and action plans.

– Engage responsibly and transparently:

– Engage with workers and their representatives – such as trade unions, health and safety representatives and employee resource groups – as part of HCM, including in the development and implementation of policies and practices. Be transparent about your approach.

– Facilitate appropriate channels for worker voice and engagement to strengthen productivity, labour relations, company culture and organisational improvement.

– Maintain grievance and whistle-blowing mechanisms that enable follow-up of complaints without fear of retaliation. Where appropriate, take steps to address inherent barriers to proper representation and access to worker voice channels and grievance mechanisms for women and minority groups.

– Engage responsibly with policy makers and regulators and be transparent about their engagements.

Norges says that these expectations will serve as a starting point for its HCM-related interactions with companies. It urges companies to address this topic in a manner meaningful to their business model – and provide transparent disclosure. The investment manager says it supports continued development of accounting and reporting practices on HCM, and that “corporate balance sheets today generally fail to provide investors with a clear picture of companies’ investments in their human capital.”

We’ll be sharing critical guidance on how to navigate HCM disclosure rules and investor expectations at our “Proxy Disclosure & 19th Annual Executive Compensation Conference” this October. In particular, tune in to our session on “Human Capital Disclosure: Mastering SEC & Investor Expectations” – with Aon’s Pam Greene, Gibson Dunn’s Ron Mueller, CalPERS’ Tamara Sells and Wilson Sonsini’s Amanda Urquiza. Here’s the full agenda for the Conferences – 18 essential sessions over 3 days. Sign up online, email sales@ccrcorp.com, or call 1-800-737-1271.

– Liz Dunshee