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ESG Hidden asset no more? Why evaluating human capital matters

Emma Doner

27 November 2023

KEY TAKEAWAYS

  • Our research suggests human capital is potentially one of the most impactful and underappreciated drivers of business value.
  • Tight labour markets, shifting demographics and new regulations suggest that human capital is becoming an even more crucial consideration for active investors.
  • We have identified five indicators that, in our view, can help investors discern how human capital management is affecting investment value. 

How does a company attract, develop and retain the right people? Does healthy corporate culture support higher innovation? What are relations like between employees and management? At Capital Group, we believe that considerations such as workforce skills, working conditions and labour relations can be very important in understanding a firm’s long-term risks and opportunities.

A hidden asset of high importance and low transparency

Learn more about why our investment professionals believe human capital can potentially drive both value creation and destruction.

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Emma Doner is an ESG senior manager with 9 years of industry experience (as of 12/31/2021). She holds an MBA in finance & sustainable development from ESLSCA in Paris, France and a bachelor’s degree in international business management from Missouri State University.

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* Certain holdings are currently not covered by third-party monitoring providers.

‡ Corporate holdings are monitored to the extent they are covered by third-party data providers.

 

ǁ Data as of March 31, 2024. UNGC is United Nations Global Compact. OECD is Organisation for Economic Co-operation and Development. As of February 2024, for corporate holdings, our monitoring methodology has been updated. We now use two data providers (MSCI and Institutional Shareholder Services Inc (ISSI)) and five different indicators to monitor and flag holdings. These indicators capture materially lower ESG performance relative to peers and potential violations of international norms via the UNGC and OECD Guidelines. This may impact the number of flagged holdings per fund.

Donut chart: Reflects all of the portfolio holdings at the issuer level. The monitoring process covers 99.6% of the portfolio holdings, which represent 100.0% of the portfolio assets, excluding cash and cash equivalents. “Other” holdings are those that either do not have available third-party data or that are not currently covered in the monitoring process. The data used in the monitoring process currently applies only to equity securities and corporate and sovereign bonds. The percentage figures may not total 100 due to rounding.

Past results are not a guarantee of future results. It is not possible to invest directly in an index, which is unmanaged. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

 

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.

 

Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organisation; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.