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INSIGHT: Investors Are Asking Companies About Covid-19 Responses

May 28, 2020, 8:01 AM

As the Covid-19 pandemic has spread across the globe, financial markets have been whipsawed by the daily news and investors are struggling to understand how the public health crisis and resulting economic collapse will impact their portfolios.

It was often argued that human rights and worker protection were moral issues not relevant to a company’s financial performance. As millions of workers are laid off and supply chains unravel, the Covid-19 crisis has proven that theory wrong.

Take, for example, the meat-packing industry. Major meat companies have shut down slaughterhouses and processing plants in North America as workers became infected. This caused major disruptions in the meat supply chain; hog farmers around the country are expected to lose around $5 billion this year. Workers are understandably reluctant to report back to their crowded working conditions.

The impact of the losses on shareholders will be significant, but investors have also been left without clear information about public companies’ human capital management practices and supply chain risks because of a lack of required transparency on these issues.

This matters because businesses that take appropriate action to protect their workers and supply chains are ensuring their ability to continue operations at an appropriate capacity through the crisis. They are also helping to limit the damage to their suppliers and customers by ensuring that forced shutdowns will not prevent them from taking delivery of inputs or continuing to produce products.

As businesses reopen, companies that have retained experienced workers, who can get back to work quickly, will be better positioned to post strong returns.

In April, Securities and Exchange Commission Chairman Jay Clayton and Director of the Division of Corporate Finance William Hinman provided much-needed guidance by recommendingthat companies “provide as much information as is practicable” about how they are responding to the pandemic. In the SEC’s most recent Investment Advisory Committee meeting on May 4, members of the committee took it a step further and urged public companies to publicly disclose information on their human capital management practices during the crisis.

Investors Need Timely, Comprehensive Data

In response to Covid-19, the commission should ensure that investors have access to timely, comprehensive and comparable data about how companies are responding to the crisis. There are a few ways it can do so.

First, the SEC should require public companies to disclose comprehensive information about how they are managing their human capital. In order to assess the impact of lay-offs and how ready companies will be to reopen and return to productivity after the crisis, investors should have quarterly figures on the total number of workers and contractors employed by a company.

Investors also need specific information about corporate practices aimed at limiting the spread of the virus, including policies on paid leave, social distancing and the provision of personal protective equipment—as well as how companies might be impacted by injuries, illnesses and fatalities among their workforce.

Investors also need to understand whether workers will be able to stay home if they or someone in their household is sick—and avoid infecting the larger workforce. That means companies should disclose the percentage of their employees with employer-provided health insurance, at least two weeks of paid sick leave and at least two weeks of paid family leave.

Second, companies should be required to disclose more information about their supply chain risks. With Covid-19, we’ve seen how disruptions to regional supply chains have ripple effects across the globe. Accordingly, companies should disclose how their products, supplies, and workforce might be impacted by a disruption to a certain region’s supply chains. Companies should also include revenue figures from certain customers and transparency around financing obligations.

And, going forward, management should be communicating details around potential risks to supply chains from future pandemics and severe weather patterns associated with climate change.

Current disclosures do not provide a sufficient view of how companies are managing these critical matters. The best path forward is to begin a process of defining stronger, immediate parameters for corporate evaluation that empower investors to make more informed decisions.

The SEC is beginning to lay the groundwork for better disclosures on these topics. But the work is not done. Investors are relying on the SEC to help them get the information they need to do their part in the economic recovery.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Heather Slavkin Corzo is the head of U.S. Policy for the U.N. Principles for Responsible Investment (PRI).

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