In today’s rapidly evolving business landscape, human capital has emerged as a critical factor influencing financial performance and credit quality. Moody’s latest report, "Technology, Demographic and Labor Market Trends Reshaping Human Capital Risk," provides a comprehensive analysis of how workforce challenges, from aging populations to technological disruption, are impacting businesses across industries.
For the third consecutive year, Denominator has contributed essential human capital, diversity, gender, and employee turnover data, enabling deeper insights into human capital risks and their business performance implications. This blog post breaks down the report’s key findings, highlighting why human capital risk is now a critical aspect for investors, credit analysts, and corporate leaders.
Nine sectors with $1.6 trillion in debt face high human capital risk.
Moody’s analysis identifies nine sectors with a combined $1.6 trillion in rated debt that face high inherent exposure to human capital risk. These risks are particularly material in labor-intensive sectors or industries that depend heavily on skilled labor and unionized workforces.
Human capital risk is now a central social consideration in credit analysis for both private-sector companies and enterprise-like public-sector entities. A company’s ability to manage its workforce, through effective labor relations, talent retention strategies, and adaptability during economic shifts, directly affects its productivity, profitability, and ultimately, its credit quality.
Structural Labor Market Shifts
Demographic trends such as aging populations, declining birth rates, and restrictive immigration policies are tightening labor supply in many advanced economies. These pressures are compounded by evolving worker preferences and the rise of gig work, which are reshaping how companies attract and retain talent.
Simultaneously, rapid technological innovation is driving up demand for specialized skills in fields like data analytics, artificial intelligence, and cybersecurity. This widening skills gap presents significant challenges for sectors unprepared to invest in workforce development or adapt to emerging labor regulations.
Labor relations risk is increasingly material to credit quality
Effective labor management is increasingly recognized as a material factor in credit quality assessments. Strikes, labor disputes, and non-compliance with labor laws can lead to operational losses and reputational damage.
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.
Human capital risk and education considerations are inextricably linked.
Education plays a critical role in workforce adaptability, especially in an era marked by automation and rapid technological change. Limited access to quality education increases long-term human capital risk by reducing a country or company’s ability to adapt to shifting economic demands.
Moody’s notes that inadequate education levels and low wages can reinforce each other, ultimately increasing governments' exposure to education-related risks. For sovereign and sub-sovereign issuers, workforce education levels directly influence social cohesion, income potential, and economic resilience.
Companies in advanced economies with higher credit ratings tend to have more women on their boards
For the third consecutive year, Denominator contributed comprehensive gender diversity data to Moody’s annual credit analysis, highlighting the increasing relevance of board and leadership composition in shaping credit outcomes. The data continues to reveal a consistent correlation between higher gender diversity—particularly at the board level—and stronger credit ratings, especially within advanced economies.
Moody’s latest findings show that:
- Investment-grade companies (Baa and above) have an average of 31% women board representation, up from 28% in 2023.
- Speculative-grade companies (Ba and below) average 26% women board representation, a slight increase from 24% last year.
- European boards remain global leaders in gender diversity, with women holding 36.4% of board seats, followed by North America at 31.7%.
This does not demonstrate direct causation between gender diversity and credit ratings. There are various reasons why the boards of higher-rated companies may have greater gender diversity, which is why a higher rating is not likely to be the direct result of board diversity alone.
Companies in emerging markets across different rating categories have experienced sizable gains in the presence of women on boards from a year earlier. But the stronger women board presence typically seen at the higher end of the rating scale in advanced economies is not evident in emerging markets.
Board diversity is greater at companies with positive governance considerations
Companies with strong governance quality (G-1) have a higher percentage of women on their boards than companies with high or very high credit exposure to governance risk (G-4 and G-5). Board of director oversight and effectiveness is one of the considerations we assess when analyzing corporate governance strength.
Conclusion
As the business environment continues to evolve, human capital risk has become a critical consideration for investors, credit analysts, and corporate leaders. From labor relations and education to diversity and governance, the ability to manage human capital effectively is increasingly tied to long-term financial performance and credit quality.
Moody’s report, supported by Denominator’s data, reinforces the need for companies to integrate human capital risk management into strategic planning and risk assessment frameworks.
Read the full report here.
