Creating Value: How Occupational Health and Safety Is Being Integrated into Financial Reporting and Why You Should Care

Terms like “sustainability” and “corporate social responsibility” are not new. They’ve been around for 20 years or more. What is new is the financial investment community’s recognition of the value of collecting and reporting material non-financial information as part of the measurement of organizational value.

More and more, corporations are recognizing that material non-financial information is important to investors and analysts. While they may have declined to participate in sustainability reporting a few years ago, corporations are discovering that the long-term viability of their operations is being judged not only on profitability, but on non-financial factors as well. This means that a growing number of organizations are including occupational safety and health data in “integrated” reports that include financial and non-financial information.

This means that a career- and practice-changing opportunity is presenting itself to occupational safety and health professionals, says Kathy Seabrook, CSP, CFIOSH, EurOSHM, chair of the Center for Safety and Health Sustainability, which just released the report, “The Accounting Revolution and the New Sustainability: Implications for the OHS Professional.”

“Safety and health professionals don’t have a clue, don’t understand their leadership role in their company’s enterprise risk management,” claims Seabrook in an interview with EHS Today.

The new report by the Center for Safety and Health Sustainability (CSHS) claims that integrated reports on performance tell a business’ stakeholders of its ability to create value in a sustainable way, and feature data on a range of non-financial matters. This means that “human capital” issues such as the mental and physical health of the workforce and employee engagement are considered material to a company’s performance, just like balance sheets and statements of cash flow.

The Six Capitals

Integrated reporting was defined by Robert G. Eccles and Michael P. Krzus in their book One Report as “a single report that combines the financial and narrative information found in a company’s annual report with the nonfinancial (such as environmental, social and governance issues) and narrative information found in a company’s corporate social responsibility or sustainability report.”

The CSHS report notes that the focus of integrated reporting has been on the importance of organizational value creation through what is known as the “six capitals.” While traditional financial reporting focused on financial and manufacturing capitals, the new age of accounting includes:

Intellectual capital – The value of employee knowledge, including intellectual property they create and organizational capital such as knowledge of the business and processes.

Human capital – A measure of employees’ skills, abilities, experience, intelligence, health and productivity. This includes their motivation to innovate and lead, as well as to support their organization’s governance framework, risk management approach and values. It includes their ability to understand, develop and implement their employer’s strategy, and their loyalty and motivation for improving processes, goods and services. This capital lies in the wheelhouse of OHS professionals, says Seabrook. “It is a business risk that has a significant impact on a company,” she said, which is why the value of human capital on a company’s financial stability cannot be discounted.

Social and relationship capital – Relationships between communities, stakeholder groups and other networks; shared values and behavior; the organization’s brand and reputation; and the ability to share information to enhance individual and collective well-being.

Natural capital – Includes all renewable and nonrenewable environmental resources and process that provide goods or services that support the past, current or future prosperity of an organization. Also includes biodiversity and ecosystem health.

“With sustainability as the impetus, we will witness a dramatic transformation in the way that OSH is viewed and managed by organizations in the coming years,” notes the report from CSHS. “The new focus on human capital will lead to increased recognition by boards of directors that OSH is a material issue that plays a crucial role in establishing the culture, values and ethics of the organization.”

Or, as Seabrook says: “This is the first time there is a line of sight [from OHS professionals] to the boardroom. OSH professionals can play a leadership role in organizational activities such as horizon scanning, change management, enterprise risk management, supply chain management and developing and implementing new standards such as International Organization for Standardization (ISO) 45001.”

“The materiality of human capital has value to stakeholders,” she adds. “This is big.”

Recommendations for OHS Professionals in the Report

With integrated reports expected to become standard business practice, CSHS outlines a set of recommendations for OSH professionals to prepare for the move. It recommends:

• Develop a new financial literacy. Transformation is taking place in the corporate world regarding accounting for non-financial information and this is their opportunity to align with their corporate leaders in a new way.
• Review their organizations’ human capital activities to identify value creation and risk mitigation opportunities, such as the greater use of contingent or contract workers.
• Review supply chain operations to better understand potential OSH-related vulnerabilities and determine opportunities to strengthen relationships and mitigate risks.
• Identify key external stakeholders and determine if there is an opportunity to better understand their needs, interests, expectations and issues raised, or improve engagement.
• Identify and review gaps in publicly reported OSH KPIs and make the information more useful for key stakeholders.

“Other parts of the world are more socially oriented. In the UK, as part of financial reporting, OSH risk has to be reported. In the United States, it’s taken a little longer to reach that point because the Securities and Exchange Commission doesn’t require it,” explained Seabrook. “But [U.S.] companies are embracing it voluntarily because shareholders have said they need that information. Here, [integrating OSH performance into financial reporting] it is considered best practice, part of operational excellence.”

The Center for Safety and Health Sustainability was established in 2010 as a not-for-profit organization committed to advancing the safety and health sustainability of the global workplace.