Accounting professionals responsible for financial reporting are partnering with sustainable business or corporate social responsibility teams, human resources, and investor relations to implement new U.S. Securities & Exchange Commission (SEC) reporting mandates for disclosures of human capital resources. SEC Regulation S-K was amended in August 2020. These amendments included changes to Item 101(c), description of business and modernization of Regulation S-K Items 101, 103, and 105, that added requirements for new disclosures of companies’ human capital resources, categorized as an aspect of sustainable business or environmental, social, and governance (ESG) reporting.

The final amendments require “disclosure [that] is material to an understanding of the registrant’s business taken as a whole, a description of a registrant’s human capital resources, including any human capital measures or objectives that the registrant focuses on in managing the business.” The amendments in the release became effective as of November 9, 2020, and compliance is required in Form 10-K, proxy statements, registration statements, and other federal securities law filings after this date.

The previous rule only required reporting entities to disclose the number of their employees. While some registrants simply reported total employees, others provided more detailed data, such as full- vs. part-time employees, the number of employees by division, and union membership. The SEC proposed new disclosures in its 2019 exposure document, Release No. 33-10668, “Modernization of Regulation S-K Items 101, 103, and 105,” and considered a range of feedback it got via comment letters.

In issuing the final release, the SEC noted that information regarding an organization’s human capital resources is important to investors. It describes human talent as a material resource that’s a driver of performance for companies. With some dissent, the consensus reflects the view that financial performance depends on how workers are treated and valued as well as whether an organization prioritizes diversity in the face of bias. Talent is an important management focus.

The final rules reflect a principles-based approach to human capital resources. In assessing the broad range of comments in response to the proposed disclosure requirements, the SEC’s core deliberation largely focused on the extent to which the rules should prescribe specific, quantifiable metrics. Ultimately, the Commission declined to adopt an existing set of standards, such as the guidelines issued by the Sustainability Accounting Standards Board (SASB), or to specify any metrics beyond total head count, which was already required. Observers have noted that these SEC regulations represent an important milestone in aligning sustainable business reporting into mainstream financial reporting. Others believe the new mandate is inadequate and that more definition and direction are needed from the SEC on delivering material ESG information to investors as it relates to financial performance. This reflects the current early point in the evolution of sustainable business reporting.

The market seeks comparable data among reporting entities. Standards can facilitate an organization’s ability to obtain assurance over ESG data, as it does with certain financial data reported to the market. Yet companies implement aspects of different sustainable business reporting standards that appear to be most relevant for their respective businesses.

Along with significant drivers toward a single set of globally accepted guidelines, there’s a growing recognition that corporate reporting in the modern business world may produce more usable information that tells the organization’s distinct story from a customized set of data points. As businesses innovate their business models around a unique strength or position, reporting may need to evolve to allow for differentiation rather than commoditization. Nevertheless, as Allison Lee, acting SEC chair, noted, the market has already accepted common metrics around human capital resources, including part- vs. full-time workers, turnover, and metrics tracking workforce, management, and board diversity.


Although the final rule doesn’t prescribe any specific standards or metrics, preparers can look to existing guidelines, such as from SASB. Since insightful business information is often industry-specific, these guidelines differ based on an organization’s operations.

SASB’s original framework (currently being modified for global use) looked to the current structure of SEC Form 10-K for conceptual direction. The number of employees covered by collective bargaining may be relevant for organizations in mining, air travel, and automobile production. Similarly, measures around diversity, equity, and inclusion are relevant across all industries and may be highly material in businesses that depend on innovative, agile talent, such as professional services, banking/financial services, software/e-commerce, and advertising/marketing.

In the United States, certain information about human capital resources is already required by other authorities, such as the Department of Labor, Occupational Safety and Health Administration, and Equal Employment Opportunity Commission. Other guidelines, such as the United Nations’ Sustainable Development Goals or those issued by the Global Reporting Initiative, may provide some additional direction, particularly if a reporting entity aims to initiate impact accounting (or “double materiality”) reporting as part of its process of meeting the new SEC guidelines.


To comply with the new regulations, financial reporting teams will need to partner with other corporate functional teams. In June 2020, IMA® (Institute of Management Accountants) released Finance Function Partnering for the Integration of Sustainability in Business to help organizations achieve cross-functional collaboration in this area.

Lara Long, VP and chief accounting officer of agricultural machinery manufacturer AGCO Corporation, said it makes sense that the SEC enacted a principles-based rule rather than prescribe exactly what every organization should do because each industry is different.

AGCO has a C-suite steering committee focused on sustainability and a cross-functional sustainability group focused on several pillars of sustainability initiatives, including human capital measures. The core sustainability group is composed of sustainability specialists as well as representatives from HR, legal, engineering, manufacturing, the product group, and finance.

“Finance is always at the table at our company because we’re the ones accustomed to regulatory reporting, internal controls, and auditing of our reporting,” Long said. “Our CEO has been very vocal that ESG and sustainability are core principles in our future vision and our strategy, and we’re making investments in these initiatives.”

AGCO has been careful to select the quantitative metrics that it puts into Form 10-K in response to the SEC’s new human capital disclosure requirements because the company wants the information provided to the market to result from rigorous, auditable processes. Long expects that the list of human capital metrics will expand over time as the company invests in better systems that have an audit trail and an internal controlled environment that AGCO’s internal audit group can monitor.

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