Human capital management research: how people are our greatest asset

Read the key findings of a new study in collaboration with Saïd Business School, University of Oxford, and the California Public Employees’ Retirement System (CalPERS).

12/07/2023
Human capital management research image of worker with hard hat.

Authors

Angus Bauer
Head of Sustainable Research

Our new research, released today, suggests that effective human capital management can lead to improved outcomes for organisations and their stakeholders.

It argues that human capital can act as a clear driver of company productivity and profitability and that companies with durable management frameworks create stronger returns and value for investors.

From communication, networks, purpose, career development and inclusion, it has identified key human factors that can drive change.

It also highlights the importance of combining quantitative and qualitative assessment when analysing human capital.

- More information about the research and its findings can be found here. This supports Schroders’ Engagement Blueprint, which outlines priorities and approaches for engaging with companies.

Key findings on the importance of human capital

Companies interact with a diverse set of capitals to create value – financial, physical and human. The latter is increasingly talked about but rarely analysed in detail.

There are multiple structural and cyclical factors underpinning the materiality of human capital.

To further our understanding of the value of sustainable human capital management, we have conducted detailed research into this field in collaboration with CalPERS and the Oxford Rethinking Performance Initiative at Saïd Business School, University of Oxford.

Below are our core views and findings on this topic so far:

1. Human capital is a critical source of competitive advantage and fundamental resilience;

2. Effective human capital management requires the stewardship of a variety of systems, including operating models, culture and inclusion, incentives, talent and learning, and innovation;

3. Qualitative and quantitative analysis of human capital management allows us to ask different questions about the drivers and sustainability of value creation;

4. Human capital return on investment (HCROI) is an accounting-based quantitative measure that can be used alongside employee economic value added (EEVA) and other metrics to assess the effectiveness of human capital management;

5. HCROI is positively correlated with forward excess returns over multiple time horizons and across sectors, even after controlling for a variety of factors;

6. Companies with stronger HCROI create more value through the cycle;

7. HCROI analysis can be used as part of a broader investment and engagement process; helping us interrogate why companies with similar levels of labour investment can achieve different fundamental outcomes;

8. Corporate disclosure of human capital-related data remains poor; richer and more pervasive disclosure would benefit market participants and asset owners.

A new framework to assess human capital value creation

This research tells us that investors cannot ignore human capital management in evaluating investee companies. As we approach continued economic volatility, we expect that companies with strong human capital management are likely to be more capable of navigating the future effectively. Even as the integration of artificial intelligence across industries evolves, the relevance of people as the stewards of value creation will remain high.

Nicholette MacDonald-Brown, Portfolio Manager and Head of European Blend, has been incorporating the analysis into her investment process.

She says: “Unlike environmental factors which have transparent values, human capital has traditionally been difficult to quantify, especially when looking at the lower end of the market cap spectrum where data is extremely opaque. This framework allows active managers like us to gain greater insights into companies within our investment universe. We can identify those which are leaders and laggards in human capital management to make informed allocation and engagement decisions.”

Important Information: This communication is marketing material. The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change. The content is issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.

Authors

Angus Bauer
Head of Sustainable Research

Topics

Follow us

To facilitate legibility, the language forms male, female and diverse (m/f/d) are not used simultaneously in this text. All references to persons apply equally to all genders.

Schroder Investment Management (Switzerland) AG (herein after called "SIMSAG") webpages are aimed exclusively at qualified investors with their registered office or residence in Switzerland. The SIMSAG webpage also contains information about collective investment schemes which are not approved for distribution to non-qualified investors in Switzerland.

For illustrative purposes only and does not constitute a recommendation to invest in the above-mentioned security / sector / country.