Insider

Wall Street is pressuring employers to release D&I and climate impact data — and it’s about to become the norm

Summary List PlacementEmployers should get ready for a world where their employee diversity and environmental impact data is public information. Companies are facing pressure from powerful investment firms, the general public, and the Securities and Exchange Commission to release more information about their impact on people and society. It marks...

FILE PHOTO: Commissioner Allison Lee participates in a U.S Securities and Exchange Commission open meeting to propose changing its decades-old definition of an

Summary List Placement

Employers should get ready for a world where their employee diversity and environmental impact data is public information.

Companies are facing pressure from powerful investment firms, the general public, and the Securities and Exchange Commission to release more information about their impact on people and society. It marks a shift toward stakeholder capitalism, the economic notion that companies should prioritize all their stakeholders, beyond just shareholders.

The world’s largest money manager BlackRock, for example, is advocating for gender diversity on boards and racial diversity from the companies in which it invests. It’s also pulling for greater climate awareness. 

“We’re hearing it a lot more over this past year with investors asking for more information around D&I,” Sheri Wyatt, ESG partner at PwC, told Insider.

The Securities and Exchange Commission already requires public companies to report information related to how they manage people, but these requirements are new and not very specific or strict. Employers need to disclose any data relating to human capital that are material to the business, but have a lot of leeway with what they share to fulfill the requirement.

This is likely to change. Reporting specific data relating to employee demographics and environmental impact could become a requirement in the future. Acting SEC Commissioner Allison Herren Lee has been vocal in her support of environmental, social, and governance (ESG) measurement and her agency’s role in promoting it. 

Some companies already voluntarily release this information. But the marketplace and general public are pushing for more accountability and transparency. Here’s what this shift means for employers and HR teams. 

D&I and ESG tied to company value 

Investors are becoming more interested in diversity and inclusion and corporate social responsibility because of the growing feeling that it can help attract new customers and talent.

Wyatt sees investors and corporate leaders increasingly tying diversity and inclusion and ESG to company value. This speaks to the extent to which talent management and social impact are growing as C-suite priorities. Executives are also seeing these measures added to their compensation plans.

“I think that’s where we’re seeing CFOs really getting engaged, because they’re getting asked the question over and over,” Wyatt said. “I do think that the more companies are being asked the question from investors, the more it’s going to start to impact the role of HR functions.”

Laurence D. Fink, CEO of investment firm Black Rock is calling for a drastic reprioritization of climate and environmental awareness, urging all companies “to disclose a plan for how their business model will be compatible with a net-zero economy.”

Fink believes “we are on the edge of a fundamental reshaping of finance” and that companies should not wait for new regulations to change their mindset on this. The New York Times reported that BlackRock “voted against 69 companies and against 64 directors for climate-related reasons,” while issuing warnings to 191 companies. 

How companies can start reporting now 

Wyatt advised her clients to expect stronger regulations from the SEC with more detailed reporting requirements in the future. 

“These issues are fundamental to our markets, and investors want to and can help drive sustainable solutions on these issues,” Acting SEC Commissioner Lee said in mid-March. “We see that unmistakably in shifts in capital toward ESG investing, we see it in investor demands for disclosure on these issues, we see it increasingly reflected on corporate proxy ballots, and we see it in corporate recognition that consumers and investors alike are watching corporate responses to these issues more closely than ever.”

Any new SEC regulations proposing stronger requirements would likely meet opposition from Republicans and other business advocates. While firms like BlackRock and new SEC leadership are making their push, companies can take it upon themselves to be more accountable. Many were already voluntarily publishing diversity data and other ESG reports on their own.

Baruch Lev, a professor of accounting and finance at NYU’s Stern School of Business, suggested that industry groups could set a standard for which metrics to report so that companies in similar industries could be compared.

Lev would like to see these groups decide on a list of valued metrics with a focus on those that are leading indicators for company performance, such as turnover or expenditures on employee training. Creating this standard would also preclude a need for further government intervention.

For now, Lev believes larger, wealthier companies will have an advantage in the current set up and that the companies that appear to be the best at ESG or D&I may just be the ones with the most cash on hand.

“Tech companies invest more in ESG than other companies because, on average, they are more profitable,” Lev said. “They can spend more on ESG, and they also have a good performance in the market. It’s their business model that drove the performance and they also happen to be good on ESG.”

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