Schroders has released a new framework to assess human capital value creation. This includes a simple set of quantitative accounting metrics which can be used alongside qualitative techniques to enable investors to refine their understanding of human capital management’s contribution to a firm’s returns and productivity.
Created with academic support from the Oxford Rethinking Performance Initiative at Saïd Business School, University of Oxford and California Public Employees’ Retirement System (CalPERS), the analysis confirms that human capital is a clear driver of company productivity and profitability and that companies with durable management frameworks create stronger returns and value for investors.
Angus Bauer, Head of Sustainable Research, Schroders, said:
“This research tells us that investors cannot ignore human capital management in evaluating investee companies. As we approach continued economic volatility, our analysis shows 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.”
Mervyn Tang, Head of Sustainability Strategy, APAC, Schroders, said:
“People are important assets for companies, and the value of these assets can be unlocked through strong human capital management and even enhanced through training and development. At Schroders, we believe assessing human capital can help us better understand the value of companies we invest in. This framework allows us to gain greater insights into companies within our investment universe. Our investment teams can identify those which are leaders and laggards in human capital management to make informed allocation and engagement decisions.”
Top-line findings from the research include:
- We can define and measure what the outcomes of good human capital management look like, and why we see structural and cyclical reasons to focus on this currently.
- Human capital returns are positively correlated with forward excess returns (those exceeding a relevant benchmark or index) over multiple time horizons and across a majority of sectors, even after controlling for Return on Capital Employed and adjusting for a variety of factors.
- There are multiple paths to human capital management affecting balance sheets and profit and loss.
- This being said, there is a risk associated with focusing too much on an objective measure of human capital. Human capital analysis must combine qualitative and quantitative assessment. With KPIs to identify good human capital management, we can consider the drivers of change, and show how to optimise human capital productivity.
More information about the research and its findings can be found here. This framework is additive to Schroders’ Engagement Blueprint, which outlines priorities and approaches for engaging with companies.
###
For further information, please contact:
Hilary Espinosa
Penta Asia
Tel: +65 8814 4903
Email: hilary.espinosa@pentagroup.co
Clarence Chen
Schroder Investment Management (Singapore) Ltd
Tel: +65 6800 7397
Email: clarence.chen@schroders.com
Schroders plc
Founded in 1804, Schroders is one of Europe’s largest independent investment management firms by assets under management. As at 31 December 2022, assets under management were £737.5 billion (€831.3 billion; $887.2 billion). The founding family remain a core shareholder, holding approximately 44% of the firm’s shares. Schroders has continued to deliver strong financial results. It has a market capitalisation of circa £7 billion and employs over 6,100 people across 38 locations.
Schroders has benefited from the most diverse business model of any UK asset manager by geography, by asset class and by client type. Schroders offers innovative products and solutions across their five business areas of solutions; institutional; mutual funds; private assets & alternatives; and wealth management. Clients include insurance companies, pension schemes, sovereign wealth funds, endowments and foundations. They also manage assets for end clients as part of their relationships with distributors, financial advisers and online platforms. Schroders’ Wealth Management offering reflects their strategic ambition to provide wealth management and financial planning services to clients across the wealth spectrum.
Schroders’ strategic aims are to grow their asset management business, build closer relationships with end clients and expand their private assets and alternatives business. Schroders’ purpose is to provide excellent investment performance to clients through active management. The business channels capital into sustainable and durable businesses to accelerate positive change in the world. Schroders’ business philosophy is based on the belief that if we deliver for clients, we deliver for Shareholders and other stakeholders.
Important information
This is prepared by Schroders for information and general circulation only, and the opinions expressed are subject to change without notice. It does not constitute an offer or solicitation to deal in units of any Schroders fund and does not have regard to the specific investment objectives, financial situation or particular needs of any specific person who may receive this. This article has not been reviewed by the Monetary Authority of Singapore.