SEC to Propose Human Capital Disclosure Rules Soon

May 21, 2021

SEC Chairman Gary Gensler made waves last Thursday when he announced in a private speech to agency and academic researchers that the SEC shortly would be proposing new rules on the disclosure of human capital metrics.

Mr. Gensler said the staff would propose a new rule on disclosing human capital metrics (HCM) soon, noting it is “one of my top priorities and will be an early focus during my tenure at the SEC.”  Mr. Gensler testified at his confirmation hearing that reasonable investors determine what is material.  That presumption underlies Gensler's rationale for enhanced HCM disclosures.  In his speech, Mr. Gensler stated that investors “increasingly want to understand” workforce and human capital practices for their portfolio companies.  Certain investors, including State Street, have said they will vote against companies who fail to disclose diversity statistics or individual directors.

The SEC is clearly intensifying its overall ESG agenda, with its solicitation period for public comments on climate disclosures set to close June 15.  In testimony before the House of Representatives Financial Services Committee, Mr. Gensler said he expected to propose new rules on corporate climate risk disclosure in the second half of 2021. 

Outlook:  The Center On Executive Compensation and HR Policy Association supported the SEC’s 2020 principles-based guidance on HCM and warned against prescriptive “laundry lists” of required or suggested metrics.  Proponents of a more prescriptive approach at the time called for diversity metrics, voluntary vs. involuntary turnover, learning and development spend, and part-time vs. full-time employees, among other measures.  Given increased scrutiny of diversity and pay equity initiatives in the current environment, any proposed SEC rule will likely include a strong suggestion (if not a mandate) regarding company disclosure of those items.  Companies may wish to evaluate how ready they are to comply with anticipated data disclosure regulations, but a new rule would not be finalized until sometime next year.  Meanwhile, Center staff are in contact with the SEC to provide our perspective on the risks, costs, and opportunities any new rules may present.