Human capital information disclosure now mandatory! SEC makes announcement at end of August

The U.S. Securities and Exchange Commission (SEC) announced in August this year that it would require listed companies to disclose information on human capital.

A Human Capital Online article provides the rationale behind investors’ wish to incorporate human capital information in investment criteria and the logic for companies. We asked Ms. Miyamoto of the Sustainability Division, who is in charge of disclosing such non-financial as ESG indicators at Rakuten, to shed some light on this topic.

Explanation 1: “Human capital disclosure” is a global trend. Japan is no exception

Actually, in Japan, there is a corporate governance code, which was compiled mainly by the Financial Services Agency and the Tokyo Stock Exchange, that serves as the main principle behind the realization of effective corporate governance. Listed companies are required to comply with the general principles of this code and related items are disclosed in corporate governance reports.

Among items related to human capital, this code stipulates the disclosure of non-financial information such as the ensuring of internal diversity, including promoting the active participation of women in the workplace, along with matters related to governance as well as social and environmental issues. Going beyond disclosures required in accordance with laws and regulations, the code also stipulates the proactive disclosure of other information.

Explanation 2: Integrated reporting goes mainstream

In recent years, integrated reports have become the mainstream of corporate annual financial reporting. These integrated reports summarize not only financial information centered on income statements and balance sheets, but also so-called non-financial information that includes management philosophy, vision, human resources management, and impacts on the environment and society.

According to a KPMG Japan survey, the number of companies issuing integrated reports increased from 135 at the start of the survey (2014) to 513 as of 2019. The proportion of issuing companies among those listed on the First Section of the Tokyo Stock Exchange is as high as 66% in terms of market capitalization (as of the end of December 2019).

Accordingly, it is evident that many of Japan’s leading companies have come to recognize the importance of disclosing non-financial information, including on human capital, and are issuing integrated reports.

Explanation 3: Human capital disclosure accelerates due to the spread of COVID-19

With the spread of the new coronavirus this year, I feel that there’s more need for human capital disclosure by companies.

In our meetings with investors, we’re receiving an increasing number of inquiries about human capital compared with last year, including questions about employee satisfaction, turnover, employee engagement and working styles, overtime hours, and training.

Investors are focusing even more on the human capital of companies to identify resilient, sustainable companies that will be able to overcome the effects of the coronavirus and thrive after the pandemic subsides.


What did you think?

You could say that non-financial information regarding “people” has been attracting attention as one of the leading indicators to predict financial indicators as outcome measures. I’d also like to keep an eye on disclosure trends of each company in Japan.