Investor-led research consistently points to the same conclusion: structured human capital and employee well-being data are financially material. Analyses from firms such as J.P. Morgan, S&P Global, Moody's and AllianceBernstein all highlight that metrics like turnover, retention, diversity, and employee well-being are not only central to organizational performance but also directly linked to financial performance and risk management. Together, these findings position engagement, turnover and mental health metrics as essential inputs for investor valuation and risk frameworks.
TURNOVER & CREDIT QUALITY
B-rated companies: 12.8% average annual voluntary turnover
Aa-rated companies: 6.8% average annual voluntary turnover
Source: Moody's Human Capital Report: Technology, Demographics and Labor Trends Reshaping Risk - stronger employee engagement and retention at higher-rated companies contributes to overall business stability
According to Moody's data, voluntary employee turnover correlates with credit quality: companies in the B rating category report an average annual voluntary turnover rate of 12.8%, while those in the Aa rating category show a significantly lower rate of 6.8%. This suggests stronger employee engagement and retention at higher-rated companies, which may contribute to overall business stability.
According to J.P. Morgan AM research, companies with the highest employee sentiment on company outlook show forward revenue growth more than twice as strong as companies with the lowest sentiment over the next three years.Workforce data today is a leading indicator of financial performance tomorrow.
S&P Global's 2025 workforce research found voluntary turnover reached 20.5% in consumer discretionary sectors and 16.9% in real estate. Yet only 2.2% of the 2,731 companies assessed track employee wellbeing through structured surveys. The gap between turnover risk and measurement creates portfolio-level blind spots most asset managers cannot see.
M&A IMPACT
53% of investors have cancelled M&A deals
due to ESG concerns uncovered in due diligence
Source: KPMG M&A transaction analysis
Portfolio holdings with weak human capital metrics face elevated acquisition risk or reduced valuations in exit scenarios.
Explore more research around human capital financial materiality in our Denominator Library, a single destination for the most up‑to‑date social and human capital research. Transforming complexity into clarity, allowing readers to explore, compare, and analyze research in an effortless way.
Regulatory drivers: mandatory disclosure is here
Portfolio-level human capital measurement is no longer voluntary. Asset managers face reporting obligations across multiple jurisdictions that require comparable data at scale.
United States (SEC): Human Capital Disclosure Rules require public companies to disclose material workforce metrics. Asset managers need portfolio-level assessment capabilities to meet fiduciary standards and answer client questions.
European Union (SFDR): Principal Adverse Indicators include social factors - gender pay gap (PAI 12), board gender diversity (PAI 13), and violations of UNGC/OECD principles (PAI 10-11). Compliance requires comparable data across all holdings, not selective disclosure.
European Union (CSRD): ESRS S1 and S2 mandate detailed human capital disclosures for large EU companies, dramatically expanding available data and creating new benchmarking opportunities for portfolio analysis.
United Kingdom: The Stewardship Code requires asset owners to report on ESG engagement, explicitly including social issues such as gender pay gap and Modern Slavery Act compliance.
These regulations create compliance obligations and strategic opportunities. Asset managers who build systematic human capital measurement capability gain visibility into risks that competitors overlook. Read more about EU regulatory changes and the human capital data challenge.
The four dimensions: what to measure in portfolio analysis
Four core dimensions for measuring human capital performance:
A. Human Rights
Evaluates forced labor, child labor, trafficking policies, board oversight, and due diligence. Measures alignment with UNGP's, OECD Guidelines, and high-risk exposure.
B. Labor Practices
Evaluates wage commitments, parental leave, freedom of association, and migrant worker rights. Includes whistleblower protections, anti-bribery controls, and labor risk exposure.
C. Health & Safety
Evaluates injury, fatality, and disease rates alongside accident prevention policies, health programs, and safety performance targets.
D. Diversity
Evaluates diversity across gender, ethnicity, age, and disability. Assesses equal pay, anti-discrimination policies, resource groups, and diversity targets.
Denominator's platform covers these dimensions across 10 million+ companies globally, providing the data infrastructure for portfolio-scale analysis.
Analytical framework: from data to intelligence
Human capital measurement becomes useful when it moves from individual company scores to portfolio-level risk intelligence. The framework below outlines how to translate raw metrics into actionable insight.
1. Peer-relative benchmarking drives interpretation
Individual company performance become meaningful through benchmarking. A company with strong performance in one market may rank differently when assessed against peers. Denominator's platform applies country-specific bottom-quartile benchmarking, comparing companies against the weakest performers in their home market to identify elevated risk.
Benchmarking contexts include:
- Industry peers - 85+ sector classifications reveal sector trends.
- Geographic peers - country and regional demographic baselines create meaningful comparisons.
- Custom peer groups - thematic fund holdings versus peer fund holdings reveal relative positioning.
This approach accounts for cultural and structural differences between countries while identifying companies with elevated risk regardless of geography.
2. Portfolio-level and company-level insights
Denominator provides analysis at both levels:
Portfolio-level insights reveal concentration and exposure across holdings. Which sectors, geographies, or human capital vulnerabilities appear repeatedly across multiple investments? Where does the portfolio face correlated risk if conditions change?
Company-level insights enable targeted engagement and individual security analysis. Which holdings rank in the bottom quartile on multiple dimensions? Where do red flags warrant deeper investigation?
Human capital performance also varies by organizational level within each company:
Board of Directors
Cognitive diversity, influence distribution (not just seat count), governance structure, independence ratios.
Executive Management
Leadership team composition, decision-making role diversity, executive turnover patterns.
Workforce
Company-wide policies, performance metrics, turnover rates, pay equity, employee sentiment, skills composition.
Example: A company with strong workforce diversity but weak board diversity signals potential governance risk. Leadership composition that does not reflect workforce composition creates strategic oversight gaps on workforce-related issues.
3. Red flags and outlier identification
Portfolio analysis surfaces elevated-risk holdings through quartile ranking and specific red flag indicators:
Bottom-quartile exposure: Companies ranking in the bottom 25% of their peer group on multiple dimensions simultaneously present concentrated risk.
Red flag indicators requiring further analysis:
- Zero women on board or executive team
- No human rights policy or supply chain audit process in place
- Workplace fatalities or injury rates significantly above sector norms
- Recent labor strikes, organizing activity, or public controversies
- Annual turnover exceeding 25%
- Gender pay gap exceeding 20%
- Regulatory enforcement actions (forced labor, discrimination, health and safety violations)
Smart Pension's portfolio analysis using Denominator's platform identified that 12% of its portfolio was invested in companies with zero women on the executive team. This analysis informed both engagement priorities and portfolio construction decisions, enabling Smart Pension to target stewardship resources where they would have the most impact. Read more about how asset owners utilize human capital data.
4. Continuous monitoring and trend analysis
Effective human capital measurement requires tracking performance over time rather than relying on static snapshots. Continuous monitoring enables:
- Quarterly or annual updates as companies publish new disclosures, ensuring portfolio risk assessment reflects current conditions.
- Multi-year trend analysis that reveals whether companies are improving or deteriorating relative to peers, distinguishing between structural improvement and one-time corrections.
- Event monitoring for workplace fatalities, labor strikes, human rights allegations, or executive changes that represent immediate risk materialization.
- Portfolio-level KPIs that track progress against specific targets, such as percentage of holdings with 30%+ women on board or average portfolio score on labor practices.
This approach transforms human capital data from a compliance checkbox into a dynamic risk monitoring system.
Tools and infrastructure: making portfolio analysis practical
Human capital measurement at portfolio scale requires platform infrastructure that can handle data at volume, apply consistent methodology, and integrate with existing investment systems. Via simple dashboards Denominator Analyzer allows you to analyze funds, investment or supply chain portfolios on selected social dimensions compared to the benchmarks of your choice.
Denominator's approach to portfolio analysis centers on three capabilities: data coverage, analytical infrastructure, and integration flexibility.
.png)
Coverage at scale: 10 million+ companies across 195 countries means portfolio analysis works regardless of holdings composition - from large-cap developed market equities to mid-cap emerging market exposure to private company portfolios. The platform covers public and private companies through verified regulatory data, social profile intelligence, and country-level context.
Analytical infrastructure: Upload portfolio holdings via CSV, ISIN list, or API integration. The platform applies automated scoring and peer benchmarking to each holding, with custom dimension weighting based on investment strategy. Visual dashboards show quartile distributions, outlier identification, and portfolio-level concentration analysis. Reports export for internal committees or client delivery.
Integration options: API access, SFTP delivery, and data lake partnerships (Snowflake, Databricks) for investors with existing data infrastructure.
Denominator Analyzer serves multiple use cases across investment organizations:
- Portfolio managers optimize allocations by addressing risks and opportunities highlighted by human capital performance data.
- ESG and sustainability analysts identify and mitigate long-term risks tied to workforce management gaps.
- Stewardship teams develop data-backed engagement strategies using peer benchmarks and company-specific performance trends.
- Quantitative analysts integrate novel global human capital datapoints into financial models to explore new performance drivers.
Learn more about Denominator's products and analytical capabilities.
From measurement to action
Human capital measurement becomes most relevant when it informs decisions. Portfolio managers use the data to identify holdings with elevated operational risk. ESG analysts use it to meet regulatory reporting requirements and answer client questions. Stewardship teams use it to prioritize engagement and build peer-benchmarked improvement cases. Risk teams use it to assess portfolio-level concentration in workforce vulnerabilities that could affect multiple holdings simultaneously.
Asset managers and pension funds are already using this approach to reduce portfolio risk, meet disclosure requirements, and make more informed capital allocation decisions. How pension funds use human capital data to reduce portfolio risk details specific applications across engagement, screening, and portfolio construction.
Get in contact with our team if you would like to learn more.
.jpg)
