The SEC, which could (and should) forge ahead with formal rule-making related to human capital, is expected to announce climate-related disclosure requirements later this month. And while we don't know exactly what those requirements will say, they are expected to cover governance of human capital–related risks and opportunities; diversity, equity, and inclusion (DEI) metrics and policies; labor practices; recruitment and retention; and rewards and benefits. Knowing that these categories are most likely to be included, here are some recommendations for what companies can do to prepare:

Start now. While there will likely be a glide path for implementing new rules, we expect that public companies will need to publish historical comparison data when the requirements kick in, which suggests companies need to prepare well ahead of time to meet any compliance deadline.
Poll employees. The most important thing companies should be doing to begin is self-identification campaigns among their employees while simultaneously ensuring they have the infrastructure for responsible data collection that maintains privacy. The more specificity companies ask for, the greater the participation they can expect in the employee survey.
Be prepared to over-report. SEC-mandated data disclosures may not enable companies to tell their whole story. Thus, organizations should be prepared to publish a supplemental human capital transparency report that provides the context behind their numbers.
Invest in technology and process. It would be impossible to overstate the degree to which data quality is essential in ESG disclosures. Processes to collect information—from policies to people data—need to be reliable, repeatable, and transparent. Whatever information is disclosed will probably have to have assurance (similar to a financial-data audit), so it's time to move away from manual analysis and ad hoc spreadsheets.

ESG reporting is not just a matter of checking boxes; it's about acknowledging what the critical levers are that drive long-term business performance and making them visible. Years ago, getting the depreciation schedule nailed down for new factory equipment was essential to give investors a fair representation of the business's future prospects. In today's service- and tech-dominated economy, companies that don't disclose similar levels of detail about the health and value of their human capital are withholding critical, material information from shareholders.

Instant Insights /

New ESG Reporting Requirements: How Companies Can Prepare Now

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