What is the Workforce Disclosure Initiative (WDI)?
The WDI launched in 2017 as a response to investor concerns that public reporting by companies on workforce issues did not provide meaningful and comparable information that investors seek to evaluate businesses.
The initiative brings institutional investors together to secure comparable workforce reporting from listed companies on an annual basis. With over $15 trillion AUM, 137 investor signatories back the Workforce Disclosure Initiative (WDI) as of 20191 . These investors are calling for transparency from companies on how they manage workers. In 2019, 118 global companies disclosed to the WDI survey which is often referred to as the “CDP” of workforce data2 . The ultimate goal of WDI is to assess and drive improvement in the quality of jobs in companies’ operations and supply chains. The initiative builds on existing reporting standards, and the data requested from companies covers workforce composition, stability, development, and worker engagement.
What is our rationale for joining?
Disclosure of workforce data is still lacking and lags behind publically available environmental data even though investors acknowledge that workforce issues are material and critical for companies.
For example, according to a recent Ernst & Young LLP (E&Y) survey, approximately half of Fortune 100 companies highlighted commitments and efforts to enhance diversity and inclusion, yet just under a third of those companies provided some measure of workforce diversity data (percentage of women and/or people of color across the global or US workforce, at the management level, in leadership positions or across incoming hires)3 .
The lack of standardized and consistent disclosure has also led the SEC to consider mandating human capital reporting at the request of investors. “The SEC does need to lead on disclosure, things companies should be thinking about and engaging with their shareholders. If you look across our economy, the importance of human capital to the performance of firms has gone way up compared to 40 years ago,” SEC Chairman Jay Clayton said in response. The decision on if and what information is to be disclosed is still pending4 .
It is also important to note that in 2016, the federal U.S. Equal Employment Opportunity Commission (EEOC) had put into place additional data reporting requirements in order to study and track gender and racial disparities in pay and promotions in the US. The current administration has since overturned this rule and companies will no longer be required to do so after the next reporting cycle5.
In any case, few companies voluntarily disclose their EEOC data to investors and much of this information has to be obtained through discussions and sustained corporate engagements.
Given the lack of available workforce data, and that the quality of disclosure for data that is currently available is not a sufficient proxy for determining quality and good practice, the WDI is one tool that investors can use to gain a better understanding of how a company manages its workforce throughout its operations and supply chain.
The WDI provides a standardized format for companies to disclose and close gaps in data and reporting on their workforce, arguably one of a company’s most valuable assets. Many of these issues have been an integral part of our ESG analysis and engagements over the years. In 2018, our engagements focused on the gender pay gap while in 2019 we focused more on wages and asking companies to consider living wage frameworks for setting compensation. We hope to further utilize the WDI to strengthen and enhance our engagement efforts in this area.
Table of Mandatory vs Voluntary Workforce Data Disclosure6,7
|Examples of Key Workforce Data||Mandatory vs Voluntary|
|Number of employees (EEO-1 data)||Mandatory under EEO-1 data reporting but voluntary public disclosure|
|Representatio n of Women and Minorities (EEO-1 data)||Mandatory under EEO-1 data reporting but voluntary public disclosure|
|Employee pay||Mandatory (EEO-1 Component 2 data to be discontinued) but voluntary public disclosure|
|Employee hours worked (EEO-1 Component 2 data to be discontinued)||Mandatory (EEO-1 Component 2 data to be discontinued) but voluntary public disclosure|
|OSHA safety data||Voluntary public disclosure|
|Workforce risks and opportunities relating to direct operations||Voluntary public disclosure|
|Voluntary turnover rates||Voluntary public disclosure|
|CEO-median worker pay ratio||Mandatory – required by the SEC to be included in annual filings|
|Gender pay gap||Voluntary public disclosure|
|Policy commitment on human rights / human rights due diligence in place||Voluntary public disclosure|
|Training and skills development relating to the direct operations||Voluntary public disclosure|
|Effectiveness of training and skills development in achieving upward mobility||Voluntary public disclosure|
|Percentage (%) of the direct operations workforce covered by collective bargaining agreements||Voluntary public disclosure|
|Living Wage considerations for employees in direct operations||Voluntary public disclosure|
|Living Wage considerations for employees in supply chain||Voluntary public disclosure|
|Wage data for contingent workers||Voluntary public disclosure|
|Whistleblower policy||Voluntary public disclosure|
|Responsible sourcing policy||Voluntary public disclosure|
|Labor standards in supplier contracts||Voluntary public disclosure|
*EEO-1 Component 2 data to be discontinued
NB Sustainable Equity team’s engagement with the WDI
In December 2019, we hosted an investor roundtable here in our offices in collaboration with the WDI Investor Engagement team. The event was well attended by various ESG investors as well as other stakeholders. The discussion mainly focused on the type of data WDI currently captures that is lacking in the marketplace and how the questionnaire could further evolve to capture more useful information. For example, many agreed that a key indicator, not currently well understood, could be to see the trend over time of what key functions a company, or companies, decide to outsource. Of course the WDI questionnaire includes voluntary turnover data, diversity data, contingent workers and living wage data among other key KPIs broadly agreed upon by investors as being critical to understanding human capital management.
How we are engaging our companies on the topic?
As of 2019, there are currently four companies in the NB Sustainable Equity portfolio that respond to the WDI questionnaire. As this is a relatively new initiative, we hope that this number continues to increase as its awareness grows. Our goal is to incorporate WDI into our engagement efforts with the expectation that more and more companies choose to voluntarily participate. Last year, we also engaged all portfolio holdings on the issue of income inequality and fair wages. We were able to obtain key insights into how our companies were managing these issues and will continue to build upon these early stage engagement efforts on the topic. We also continue to notify our portfolio holdings that we are investor signatories to the WDI and that this could potentially be a useful framework for which to report on workplace issues.