On 28 September, global and EU experts discussed the possible pathways to increase transparency on what companies are doing to invest in skills, human capital and continuous training, and what are the best ways to reflect this in the balance sheet at joint ACCA, SMEunited, CDSB and Adecco Group event, followed by over 180 participants across Europe and beyond.
The digital transformation and Covid-19 have undoubtedly impacted all industries and enormously challenged many businesses in terms of their workforce and commitment to upskill and reskill. Many organisations claim that human capital is essential for their success and sustained value creation, however, when it comes to costs, many still see it as an expense and not investment. Human capital is also not often a part of board-level discussions or companies’ balance sheets.
ACCA, Adecco Group, SMEunited and CDSB (Climate Disclosure Standards Board) organised a lively online event to initate a debate on these issues in examining possible pathways to increase transparency on what companies are doing to invest in skills, human capital and continuous training, and what are the best ways to reflect skills and human capital in the balance sheet.
After a welcome speech by Ravi Abeywardana, Technical Director at CDSB and two keynote speeches by Manuela Geleng, Director for Skills, DG EMPL, European Commission and Patricia Couti, policy adviser for Dragos Pîslaru, MEP , the panel session moderated by Cécile Bonino-Liti, Head of EU Affairs, ACCA welcomed Julie Fionda, Deputy Head of Unit, Skills and Qualifications, DG EMPL, European Commission; Katharine Mullock, Labour Market Economist, Skills & Employability Division, OECD; Kristian Koktvedgaard, EFRAG’s PTF -ESRS member, Social cluster; Luc Hendrickx, Director, SMEunited & EFRAG’s PTF-ESRS member, SME Cluster and Andrew Howard, Global Head of Sustainable Investment, Schroders. Concluding remarks were delivered by Karin Reiter, Global Head of ESG/Sustainability, the Adecco Group.
Ravi Abeywardana, Technical Director at CDSB set the scene, explaining the current state of play on social disclosures, stressing that there is some way to go to report effectively on risks and opportunities related to social and environmental topics. CDSB's next steps to support preparers to enhance social disclosures involve a more systemic and comprehensive approach to corporate sustainability reporting, including: understanding materiality as a dynamic concept; providing a framework for reporting comprehensively on social issues within the annual report based on CDSB and TCFD complementary approaches; Reducing the alphabet soup: grabbing the opportunity of current discussions towards the establishment of sustainability reporting standards; Working towards the reflection of material sustainability-related matters in financial accounts’.
The European Commission (EC) presented in 2020 the European Skills Agenda for Sustainable Competitiveness, Social Fairness and Resilience which sets ambitious, quantitative objectives for upskilling and reskilling to be achieved within the next 5 years. Its Action 12 namely, which is about about nudging government and business to invest more in skills, foresees that the EC will seek to enhance reporting on human capital by large companies, including on the skills development of employees. Furthermore, the Commission will also study other ways of increasing transparency of companies’ expenditure on human capital, for example by presenting them more visibly in their accounts.
Manuela Geleng, Director for Skills, DG EMPL, European Commission said: “Skills are the most productive investment we can make – at the macro level, at the level of an individual business, and at a personal level. We need to get better at recognising this and reflecting it in our investment decisions”.
Julie Fionda, Deputy Head of Unit, Skills and Qualifications, DG EMPL stressed that "on the accounting side, just as with the other frameworks, it's not something that the Commission could do alone, and it's not overnight, especially if the conclusions would recommend any change to international accounting standards, which would also bring into play other considerations like the valuation of enterprises, for example when going for a loan, and the impact on tax. Next year, the EC plans to commission a study on skills in company accounts as input into to the next step on this work".
The EC is also working on statistics on public and private investment in adult skills together with national statistical offices, including by developing ‘satellite accounts’ to improve transparency of reporting on skills in national accounts and budgets. ‘The European Commission is finalizing a study on social impact bonds and their use in the provision of social services, and considering whether to introduce social outcome contracting in the EC lending activity’, Julie Fionda added.
For Patricia Couti, policy advisor of Dragos Pîslaru MEP, ‘transparent accounting for skills and human capital based on standardised reporting indicators can facilitate the exchange of best practices among companies and lead to upward confidence. However, we need to reach a balance between the transparency for investment in human capital and also the reporting for companies. The directive on corporate sustainability reporting (CSRD) is the proper environment and the momentum is right to reach that balance’. She questioned how detailed the reporting should be, and stressed that supporting investment in skills must be an integrated part of a long term strategy, focusing on 6 aspects: assessing skills; identifying trends and strategic sectors; upskilling of digital skills; development of entrepreneurial skills from an early age; full recognition and portability of skills; skilling/reskilling/upskilling in order to develop the right skills for this shift to a sustainable way of producing and service delivery; and consider the vulnerable groups.
Katharine Mullock, Labour Market Economist, Skills & Employability Division, OECD, indicated that the OECD is about to publish - late October early November- a new qualitative study of enterprise training behaviours, providing insights on what training and learning opportunities are currently being provided within firms; what their motivations are for providing training; and finally, what is the decision-making process that firms go through in making their training decisions. The report finds that the main motivation for firm investment in training is compliance with health and safety regulations, rather than firm performance. Any reporting on firm investment in training should therefore classify training content in order to distinguish between training that is already required by regulation versus other types of training. ‘Most of learning that takes place within firms is informal, and of course informal learning can't be monetized, nor valorised on a balance sheet. Not all learning can be made transparent in the balance sheet.’ The spending on training is one thing, but there's also the consideration of the quality of training and the outcomes from training. One of the findings from the OECD study was that firms are using only very basic methods to assess the outcomes of training. So despite the significant time and money that goes into training - for the most part- , firms are relying on employee surveys or pure observation at work to assess outcomes. It would be great if we could somehow link this accounting exercise with measures of profitability and productivity, to be able to assess whether there is a causal link between firm investment in training and outcomes’, she said.
Participants also heard some preliminary experiences and findings from the EFRAG Task Force in charge of preparing EU Sustainability Reporting Standards (PTF-ESRS), with Kristian Koktvedgaard, member of the Social cluster and Luc Hendrickx, Director, SMEunited & member of the SME Cluster.
Only limited material is public at this stage, but we will see a gradual publication of also interim documents during the next months. There will be a first batch of standards in 2022, and a second batch in 2023. The difficulties are linked to striking the right balance between all the topics on the plate, the broad scope of companies covered and the time pressure. We are on a journey, the first step is to ensure alignment in the reporting, especially in the area of social topics, while we build the next steps including metrics and further connectivity issues. ‘The value of people is an integrated part or of the work in in the project task force, but how do we identify the material aspects of skills sets? And how can we provide some guidance on how do you identify that impact? We are looking at which metrics makes sense on a general level – the sector agnostic level – and the sector specific and entity specific level. On the issue of global coordination, the task force is of course building on what is already there, trying to ensure that there is that cohesiveness between the various standards. There is a very good working relationships with the other standard-setters, also in terms of co-constructions’, Kristian Koktvedgaard said.
Regarding SMEs, it was stressed that while skills and trainings are extremely important in small and medium sized enterprises, training is completely different, the offer is done in mutual agreement between employer and employees, and is mostly informal and non-formal, therefore making validation and monetisation difficult, for not saying impossible. The transparency and non financial reporting should support the strategic decision making in a company. A recent EUROFOUND study reveals that small and medium sized enterprises have also difficulties to find advice on existing training offers adapted to their specific needs. Guidance is also needed to identify their future training need. Luc Hendrickx stressed: “Voluntary sustainability reporting by SMEs has to be encouraged as it can play a role in their “employer branding” and in the struggle for talent. However future reporting standards risk not to catch the specificity and diversity of training in SMEs”.
Andrew Howard, Global Head of Sustainable Investment, Schroders recalled the importance of skills and human capital analysis to investment decisions. He also shared his views on what we can do to bring skills and human capital analysis more firmly into the mainstream of investment decision making, and ensuring that companies are rewarded for their efforts.
Karin Reiter, Global Head of ESG/Sustainability, the Adecco Group concluded: "At the Adecco Group, we have long been a vocal proponent of up- and reskilling to increase the sustained employability of people, and of the need to adequately reflect this in the balance sheet as investment rather than cost to further drive meaningful action. What this conversation – and particularly the actors involved – now clearly showed is that the human capital side of accounting is no longer a nice to have, but has shifted to the centre of the debate."