Human Capital Disclosure Rules Revised by the SEC

Human Capital Disclosure Rules Revised by the SEC

September 2, 2020

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On August 26, the Securities and Exchange Commission (SEC) announced changes to Regulation S-K as part of its human capital disclosure requirements for companies’ non-financial reporting.

“Many of the amendments,” stated the SEC media release issued last week announcing the adoption of the new guidelines, “reflect the Commission’s long-standing commitment to a principles-based, registrant-specific approach to disclosure. These disclosure requirements, while prescriptive in some respects, are rooted in materiality and are designed to facilitate an understanding of each registrant’s business, financial condition, and prospects. The rules are designed for this information to be presented on a basis consistent with the lens that management and the board of directors use to manage and assess the registrant’s performance.

“The modernization of Items 101, 103, and 105 is intended to elicit improved disclosures, tailored to reflect registrants’ particular circumstances, which are designed …(to) improve disclosures for investors and add efficiencies to the compliance efforts of registrants. The amendments are also intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of information that is not material.”

The SEC’s final rules document, the Modernization of Regulation S-K Items 101, 103, and 105 is 113 pages in length. The Commission acknowledges in its media release that Regulations S-K have not undergone significant revisions in over 30 years (See Highlights below).

Human Capital Disclosure Becomes the Law

Bloomberg Law wrote that while the SEC identified it wants more human capital disclosure it, “won’t say how much.” Attorney Mike Melbinger described the new guidelines by saying, “the SEC seems to be taking a laissez-faire approach, allowing companies and thought leaders to develop best practices on their own.”

Melbinger blogged that the amendments to the Regulations S-K disclosures, included, “a requirement that companies describe any human capital measures or objectives they focus on in managing the business, to the extent (that is) material to an understanding of the company’s business as a whole.” He also noted that this was the most concrete guidance to date, and that more than guidance it is also, “now a legal requirement.” (Read more: Human Capital Disclosure Becomes the Law on the Executive Compensation Blog Part I and Part II)

The Thought Process Behind the SEC’s Position

SEC Chairman Jay ClaytonSEC Chairman Jay Clayton gave perspective to the SEC’s approach saying, “Building on our time-tested, principles-based disclosure framework, the rules we adopt today are rooted in materiality and seek to elicit information that will allow today’s investors to make more informed investment decisions. I am particularly supportive of the increased focus on human capital disclosures, which for various industries and companies can be an important driver of long-term value. I applaud the staff for their dedication and thoughtful approach to modernizing and improving these rules and adding efficiency and flexibility to our disclosure framework.

“Today’s rules require that, in crafting their human capital disclosure, companies must incorporate the key human capital metrics, if any, that they focus on in managing the business, again to the extent material to an understanding of the company’s business as a whole.

“Experience demonstrates that these metrics, including their construction and their use, [vary] widely from industry to industry and issuer to issuer, depending on a wide array of company-specific factors and strategic judgments. As I have said previously, I would expect that the material human capital information for a manufacturing company will be vastly different from that of a biotech startup, and again vastly different from that of a large healthcare provider. And the human capital considerations for a multinational car manufacturer will be different from that of a regional home manufacturer.”

Highlights of the Final Amendments Per the SEC

Modernization of Regulation S-K Items 101, 103, and 105


On Aug. 8, 2019, the Commission proposed amendments to modernize the disclosure requirements in Items 101, 103, and 105 of Regulation S-K. The proposals were part of a comprehensive evaluation of the Commission’s disclosure requirements that was recommended in the staff’s Report on Review of Disclosure Requirements in Regulation S-K (“S-K Study”). The S-K Study was mandated by Section 108 of the Jumpstart Our Business Startups Act (“JOBS Act”). Based on the S-K Study’s recommendation, the staff initiated an evaluation of the information our rules require registrants to disclose, how this information is presented, where this information is disclosed, and how we can better leverage technology as part of these efforts (collectively, the “Disclosure Effectiveness Initiative”). The overall objective of the Disclosure Effectiveness Initiative was to improve our disclosure regime for both investors and registrants.

In developing the proposed amendments, the Commission considered input from comment letters received in response to these disclosure modernization efforts. The Commission also took into account the staff’s experience with Regulation S-K arising from the Division of Corporation Finance’s disclosure review program and changes in the regulatory and business landscape since the adoption of Regulation S-K.

In response to the proposed amendments, we received numerous comment letters, and after considering all of the public comments received, the Commission is adopting the amendments substantially as proposed with certain modifications.


The final amendments will, among other things:

  • amend Item 101(a) by:
    • making it largely principles-based, requiring disclosure of information material to an understanding of the general development of the business;
    • replacing the previously prescribed five-year timeframe with a materiality framework; and
    • permitting a registrant, in filings made after a registrant’s initial filing, to provide only an update of the general development of the business focused on material developments that have occurred since its most recent full discussion of the development of its business, which will be incorporated by reference;
  • amend Item 101(c) by:
    • clarifying and expanding its principles-based approach, with a non-exclusive list of disclosure topic examples drawn in part from topics currently contained in Item 101(c);
    • including, as a disclosure topic, a description of the registrant’s human capital resources to the extent such disclosures would be material to an understanding of the registrant’s business; and
    • refocusing the regulatory compliance disclosure requirement by including as a topic all material government regulations, not just environmental laws;
  • amend Item 103 by:
    • expressly stating that the required information may be provided by hyperlink or cross-reference to legal proceedings disclosure located elsewhere in the document to avoid duplicative disclosure; and
    • implementing a modified disclosure threshold for certain governmental environmental proceedings resulting in monetary sanctions that increases the existing quantitative threshold for disclosure of those proceedings from $100,000 to $300,000, but that also affords a registrant some flexibility by allowing the registrant, at its election, to select a different threshold that it determines is reasonably designed to result in disclosure of material environmental proceedings, provided that the threshold does not exceed the lesser of $1 million or one percent of the current assets of the registrant; and
  • amend Item 105 by:
    • requiring summary risk factor disclosure of no more than two pages if the risk factor section exceeds 15 pages;
    • refining the principles-based approach of Item 105 by requiring disclosure of “material” risk factors; and
    • requiring risk factors to be organized under relevant headings in addition to the subcaptions currently required, with any risk factors that may generally apply to an investment in securities disclosed at the end of the risk factor section under a separate caption.

What’s Next?

The amendments will be effective 30 days after publication in the Federal Register.

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