Workforce Data Insight Pitch

standardized human capital information forces capital market participants to rely on limited approximations of critical data that are often costly, inefficient, and unreliable. ¹5 15 17 Because such data are elusive, it is unlikely that human capital is fully priced into the market. ¹6 Indeed, research has found that an investment strategy built on firms' human capital investments yields abnormal returns from 3.5 to 7.8%, ¹7 and recent years have seen the growth of investment strategies and themed products based around available human capital. As of the end of Q3 2022, asset managers had launched at least 20 funds with a human capital focus in their investment strategies; another 34 asset managers incorporated workforce-related criteria. ¹8 18 survey as a starting point for consideration of HCM-related policies and practices. The model questionnaire contains detailed questions on HCM issues and can be used to assess the HCM practices of the asset management firm itself and/or the practices of its investee companies, where applicable. See Draft Report, "Summit on Workforce Valuation and Reporting Summary Report" (on file with authors). The DDQ includes "the most frequent and important diligence questions posed by investors of managers." ILPA represents nearly 600 institutional investors (public pension funds, endowments and foundations, private pension funds, family offices, insurance companies and other institutional investors) that manage capital on behalf of their beneficiaries, which include retirees, teachers, firefighters, police officers, universities, charities, and insurance policyholders. https://ilpa.org/due-diligence- questionnaire/ 15 Analysts and researchers are forced to rely on crude workarounds to fill the human capital reporting gap, such as using Glassdoor, Indeed, and LinkedIn to create proxies for needed human capital disclosures to "guestimate what a company's labor costs are". Council of Institutional Investors, The Voice of Corporate Governance, https://www.cii.org/podcasts/ See also, Shivaram Rajgopal, Why The Public Reporting Model is Broken and How to Fix It, FORBES (January 24, 2020) https://www.forbes.com/sites/shivaramrajgopal/2020/01/24/why-the-public- reporting-model-is-broken-and-how-to-fix-it/?sh=3d319fe85b09. One asset manager reported that because retention and turnover data is typically unavailable but is financially material, its financial analysts have developed various proxies for turnover that are narrowly scoped to a particular industry or type of employee, and therefore limited in application. John Streur, Calvert Research and Management, Letter to Chairman Gary Gensler, Sec. & Exch. Comm'n (August 31, 2021), https://www.sec.gov/comments/climate-disclosure/cl112-9190246-249462.pdf. In a recent interview on workforce data integration, a senior investment professional at a midsized U.S.-based asset management firm stated, "we have our materiality map and try to back it up by academic and industry evidence to make it less subjective than it was. Now [we are] going back to this and partnering with our [quantitative scientists] and asking them to use natural language processing to scan that company's legal filings and say, 'does the company themselves disclose [human capital] as a risk?' if the company is disclosing this themselves as a risk it takes all subjectivity out of it; ... as fundamental investors that should be incorporated as part of our investment process. We are less than a quarter of the way through our project, but what we've seen consistently is that companies are disclosing either human capital or labor risk throughout their filings. ... what we're finding is that human capital and labor are [consistent risks across every subsector]." (Confidential Interview with Senior Investment Integration Professional. Conducted by Cambria Allen-Ratzlaff [phone], 13 Sept. 2023. Interview notes on file with IAC Investor as Owner Subcommittee Chair) 16 Matthias Regier and Ethan Rouen, The Stock Market Valuation of Human Capital Creation, 79 J. CORP. FIN. (2023), https://www.sciencedirect.com/science/article/pii/S0929119923000330. 17 Id. 18 It is notable that CalPERS, Schroders, and Oxford University released a framework to quantify financial returns from human capital. https://www.institutionalinvestor.com/article/2bwv3pmbyt4tb6904fim8/portfolio/companies- that-take-care-of-their-employees-perform-better-schroders-and-calpers-want-to-capitalize-on-that INVESTOR ADVISORY COMMITTEE 5

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