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Investing Perspective published on December 4, 2019

Breckinridge Backs New HCM Disclosure, Transparency Rules

Breckinridge Capital Advisors responded to the Securities and Exchange Commission’s (SEC’s) proposal to amend Regulation S-K and rules for human capital management (HCM) disclosure. Breckinridge’s Director of ESG Research Robert Fernandez, CFA, discussed the company’s response.

Q. What is Regulation S-K? Why is the SEC seeking to change it, particularly around HCM?

Rob Fernandez: Regulation S-K lays out rules for SEC filings made by public companies including what and how they disclose information. The SEC is updating rules that haven’t had major revisions in more than 30 years.
So much has changed in that time: technology; the markets; even the financial and non-financial information we use to evaluate companies. This is especially true when it comes to the maturation of environmental, social and governance (ESG) analysis.

The SEC is proposing for public comment amendments to modernize the rules companies use to report on HCM. HCM covers how companies treat full and part-time employees from recruiting to compensation to benefits. HCM is an important part of the S in ESG. A bond issuer’s approach to HCM may give us insight into the sustainability of its operations.

Q. Why did Breckinridge provide comments to the SEC on HCM disclosures?

Rob: The SEC invited public input about HCM reporting. It often asks market participants—investors and stock and bond issuers—to offer ideas about rules reform based on their practical experience.

The SEC said that the rule changes will consider recent developments, improve disclosures for investors and simplify compliance for filers. From our perspective as investors, new rules should help increase the amount of HCM information reported by corporate bond and stock issuers as well as establish consistent reporting formats so that investors can more easily compare one issuer to another.

Q. What do we know already about the SEC’s approach to reforming HCM disclosures?

Rob: The SEC’s Investor Advisory Committee’s input on HCM is consistent generally with our point of view and that of the Sustainability Accounting Standards Board (SASB).

The committee approved recommendations for the full Commission that included; first, recognize the importance of HCM and incorporate it into ongoing disclosure rules reviews; second, learn more about the kinds of HCM disclosures already required; and, third, to avoid simple one-size-fits-all approaches.

One-size-fits all approaches can oversimplify and broaden rules at the expense of providing helpful data and insights.

Q. What did Breckinridge say in its letter to the SEC?

Rob: We discussed our experience as a leader in ESG integration within the fixed income space. We expressed our support for the Commission’s rulemaking initiative. Finally, we discussed our recommendations for meaningful HCM disclosure requirements as specified by the SASB. (To view Breckinridge’s comment letter to the SEC on rules related to HCM disclosures, please click here)



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