Human Capital: The what and the why…
As is the case with other forms of capital1, human capital is considered a store of value that a company can activate in order to ensure sufficient continuity in business operations and economic growth. In essence, the way people think and behave in a firm, which is closely tied to its culture2, is a key differentiating factor for short and long-term performance and this can translate into material financial impacts.
While investing in human capital comes at a cost to companies in the short-term, for example new training capabilities and wage increases, there is evidence that the return on investment i.e. better employee engagement and productivity as well as improved customer satisfaction, will more than offset the initial expenses.3
Fundamentally we believe that investing in companies which show best practice, when it comes to human capital, will better manage downside risks while the best performers in this area will enjoy an improved risk/return performance.
1 The IRCC identifies six types of capital that a company may use to maximize value creation : financial, manufactured, intellectual, human, social and relationship, natural – and identifies the links between financial and social value (link).
2 Company culture is often categorized under « social capital ». Yet we will also consider it in our analysis as being, in our view, at the outset of employee engagement and can hardly be set aside.
3 Cf: “The Materiality of Human Capital to Corporate Financial Performance” (link) building on 92 studies, the majority of which find positive correlations between training and human capital policies and financials
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