Asset management firm Schroders has launched a new framework aimed at evaluating human capital value creation. The framework, developed in collaboration with the Oxford Rethinking Performance Initiative at Saïd Business School, University of Oxford, and the California Public Employees’ Retirement System (CalPERS), offers a comprehensive set of quantitative accounting metrics to complement qualitative techniques. It empowers investors to enhance their understanding of how human capital management contributes to a company’s returns and productivity. The analysis conducted as part of this initiative substantiates the notion that human capital plays a pivotal role in driving company productivity and profitability. It further demonstrates that companies with robust management frameworks generate greater returns and value for investors. The research findings revealed several key insights, such as human capital returns exhibit a positive correlation with forward excess returns across various time horizons and sectors, even after adjusting for Return on Capital Employed and other factors. The analysis also identified multiple pathways through which human capital management impacts a company’s balance sheets and profit and loss. “This research tells us that investors cannot ignore human capital management in evaluating investee companies,” said Angus Bauer, Head of Sustainable Research at Schroders. “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.”
