What do businesses need to add to ESG disclosures? Their people

Companies are rather reluctant to talk about their staff. I do not mean “people are our greatest asset”, or puff about “harnessing talent” and “leveraging creativity”. 

But the basics: how are they employed? How are they paid? How quickly do they leave? How are they looked after if they stay?

In terms of disclosure, if not intention, “S” has long been the poor relation in the ESG family. Consensus has been slower to form on what companies could or should disclose about their “social” commitments, than their environmental impact or governance.

Disclosure varies by market and the UK fares better than, say, the US. But, according to FTSE Russell, about 60-70 per cent of large and midsized companies in developed markets provide data on the most disclosed environmental items that are tracked by sustainably-minded investors. But there is only 5-15 per cent disclosure at the other end of the spectrum. Those least-elucidated areas tend to be the “social” ones.

The upshot is that the corporate world seems more eager to send signals about its efforts to protect the planet than to talk about the workers who have to live on it.

Even ticking all the standard boxes does not give a decent picture. Look at the London Stock Exchange’s ESG Disclosure Report, which tracks the quantitative building blocks of good disclosure. It includes measures of staff turnover, training and share of temporary staff. But a 100 per cent score still would not give an investor good comparable information on whether a company uses insecure employment models, or how staff have been safeguarded during the pandemic.

As Deliveroo, one poster child for the gig economy, nears its London listing, investors should be pushing to hear more about staff from everyone.

First, the risks of getting it wrong on social issues have become obvious. 

“Relationships with community stakeholders” sounds like ESG fluff. But disregard for them has sent the chief executive and chair of Rio Tinto packing after the destruction of the Juukan Gorge caves in Western Australia. The lingering cloud over Boohoo shows why investors should be paying close attention to people, not just those employed directly but also in the supply chain.

Second, workforce issues are moving up the agenda. Uber’s defeat in the Supreme Court, and subsequent decision to classify its 70,000 UK drivers as workers, means more questions about the future of insecure employment models. The government is under renewed pressure to find wherever it hid the 2017 Taylor Review and act on its recommendations.

Yet the Pensions and Lifetime Savings Association in 2018 found only 11 per cent of the FTSE 100 gave a breakdown of full-time and part-time staff, and only 6 per cent disclosed the number or proportion of agency staff they used.

The pandemic has also exposed injustices around work that cannot be ignored. 

Those in low paid and insecure work were more likely to risk their health to continue working in lockdowns. The problems caused by insecure contracts in areas such as social care, as well as poor sick pay provision more broadly, were very clear. 

Yes, the demands of ESG disclosure are exploding for companies. And yes, some social issues can be difficult to quantify. But there is plenty of basic HR data that companies could disclose and choose not to. 

When the Climate Action 100+ contacted companies about the creation of their net-zero company benchmark, released this week, 90 per cent of them replied. But when the PLSA, representing the billions managed by the pension industry, asked to discuss reporting on workforce issues with the FTSE 100, only seven took them up on it. 

If people are indeed a company’s greatest asset, then investors should want to know far more about how they are being treated.

helen.thomas@ft.com
@helentbiz

Letter in response to this column:

Securing energy justice must be a COP26 goal / From Angela Wilkinson, Secretary-General and Chief Executive, World Energy Council, London EC3, UK