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Schroders’ new framework to assess human capital value creation at investee companies

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This is a sponsored article from Schroders.

Schroders is pleased to release 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 more robust returns and value for investors.

“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,” said Angus Bauer, Head of Sustainable Research at Schroders.

Top-line findings from the research include:

  • We can define and measure the outcomes of good human capital management and why we currently see structural and cyclical reasons to focus on this.
  • 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 various factors.
  • There are multiple paths to human capital management affecting balance sheets and profit and loss.
  • This being said, there is 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.

People are essential 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,” said Mervyn Tang, Head of Sustainability Strategy, Asia Pacific, at Schroders.

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Schroder Investment Management (Hong Kong) Limited
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This is a sponsored article from Schroders.

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