The social element in sustainable investing and environmental, social, and governance (ESG) frameworks is generally regarded as the most difficult aspect to define and implement. Consequently, investors have largely ignored it in the investment decision-making process and when investors have integrated human capital considerations, this is generally used as a risk management metric, rather than a means to drive excess portfolio returns. A highly skilled workforce enhances a firm’s ability to innovate, either through the creation of new patents, products, and services, or by producing efficiencies that streamline operational workflows. The US H-1B visa program for highly skilled foreign labor represents a unique proxy for firm investment into human capital. We find that the level of H-1B intensity within a firm is positively correlated with firm innovation, as measured by R&D intensity. We show that there is significant correlation between firm investment into human capital as proxied by the H-1B program and defined as H-1B intensity to firm financial performance including 1-, 3-, and 5-year revenue growth. Last, we demonstrate that the US market does, in fact, reward innovation-driven firms and sectors that invest in the H-1B application process with higher market returns.
Ko et al. (Thu,) studied this question.