Environmental, social and governance (ESG) issues are becoming more and more relevant in the actions of institutional investors. One aspect of this that touches specifically on social and governance issues is human capital management (HCM). hkp.com spoke to Kai H. Helfritz, head of member management & cooperation & member of the executive board of DGFP – the German Association for Human Resource Management.
Mr. Helfritz, did it surprise you to see BlackRock, the largest global investor, address the issue of human capital management so prominently this year?
Kai H. Helfritz: Over the past two or three years we have seen an intensification of the discussion around ESG criteria and their significance in investment decisions. And, given the overlap in social and governance topics, it was only a matter of when and how prominently aspects of HR management would move to the fore of this. This is equally clear to see if you look at how the subject of diversity has grown in relevance. But ultimately it was surprising to see the CEO of BlackRock go out on a limb to steer attentions towards issues of human capital management.
How have your member companies responded to this?
Kai H. Helfritz: Reactions from the HR community have been broadly cautious in our view. This could be due to a number of different reasons, all the more so given that our DGFP members are not restricted to listed companies. SMEs account for a far larger share of our members. And HR management hasn’t featured high on the priorities of investors up until this point...
… something which is likely to change now?
Kai H. Helfritz: HCM and its figures are first and foremost an in-house concept, used in employer branding for instance. That is something that will change. But I think many have still to fully grasp the consequences of this increased investor focus.
Which consequences strike you in particular?
Kai H. Helfritz: The capital market will increase its focus on HR management on the whole, leading to increased demands on quality of information and communication. As simple as that sounds, the challenges associated with it are immense. With it comes a whole range of new requirements for the role of HR and how HR departments perceive themselves. But instead of viewing this as a burden, we should see this as an opportunity to boost the prominence of HR in the company and beyond.
What, in your view, are the key challenges – and opportunities?
Kai H. Helfritz: Engaging in meaningful dialog with investors will require increased transparency with regard to the relevant figures and developments within companies. Not only are we likely to see an increase in the scale of relevant data, but we’re also likely to witness an increase in the quality of this data.
But aren’t companies already reporting on these key figures?
Kai H. Helfritz: Yes, to the best of my knowledge and belief, to a varying degree from company to company. We're still yet to see the introduction of systems, history, or transparency to aid the comparability of developments in specific companies or comparisons of key figures between companies.
That sounds less cosmetic, and more like fundamental change?
Kai H. Helfritz: A much needed change. Reporting must and will change. Let me draw your attention to one of the opportunities this opens up for HR: this increased investor focus on human capital management and the associated change in the standard of reporting won't just ask more of HR, it will also move it considerably higher on companies’ strategic capital market agenda.
You’re referring to dialog with investors…
Kai H. Helfritz: As it stands just now, investor representatives do not generally interact with CHROs, instead dealing exclusively with supervisory board chairs, CEOs and Investor Relations. But under the German governance system, the CHRO is responsible for human capital management. This sees dialog with investors given a key new role which, internally, includes raising awareness on decision-making bodies like the executive board and supervisory board. Externally it forms the basis for a professional dialog with investors on human capital issues.
So human capital management primarily concerns listed companies…
Kai H. Helfritz: It goes without saying that companies active on the capital market are directly and most heavily impacted. But it’s not just this group that’s seeing ESG and HCM standards take root; these are filtering down – albeit with a slight delay – to non-listed companies and those closely linked to the capital market too. Here, companies have the option of resorting to governance, communication and reporting processes and tools which are recognized as best practice by non-listed companies too and which can be adapted to meet their specific needs. The German stakeholder approach with its purposefully broad perspective of the requirements of a wide range of company target and stakeholder groups offers a very good basis for this.
Mr. Helfritz, thanks for talking to us!