The value of H&S investment

There is an opportunity for boards to leverage their health and safety approach for greater profitability and organisational success, says Phil Parkes, Group Director Environment Social Governance at HSE Global.

Internationally, organisations are increasingly integrating business growth and stakeholder perspectives and health and safety thinking – an approach sometimes referred to as health, safety and environment (hence HSE) or even health, safety, environment and quality (HSEQ), Parkes says.

“So, health, safety, the environment and quality are often considered together. From a director’s point of view, this might be ensuring a product or service is ethical, or ensuring the quality of the product or service is up to scratch. These things go well together because they are all about managing the externalities of running a profitable business. This is where New Zealand has a little bit of catching up to do when we think about health and safety.”

While there is a global shift away from ESG initiatives, Parkes argues that integrating broader thinking into health and safety can drive sustainability for organisations – not just in the long term, but also in the face of current challenges.

Short-termism is a reasonable approach, to the extent that the effects of climate change or restrictions on oversees market access may not be a problem tomorrow. But the timeframe for being able to manage future impacts is growing shorter, Parkes says.

“Within two years, five years or 10 years, the direction is pretty clear. The requirements around climate governance, whether they are market access, finance-driven or legislative-driven, are only going to increase.”

If boards “don’t get ahead of this trend they may find supermarkets will stop buying their products, banks will stop lending, or insurers will stop underwriting their activities”.

“If you back away from ESG considerations – which are real and practical business risks – you may find they become an existential risk. If the banks and the insurance companies, or your suppliers or customers switch off, then you could be in real trouble. That’s the dilemma and this is where the ‘governance’ part of ESG comes in – balancing short-term pressures with long-term strategies.”

Parkes says the ESG backlash is fascinating, particularly at this point in history. “There has been a journey of increasing recognition of this concept, which used to be called corporate social responsibility and is now called ESG. What we’re seeing is a push back against that, whether it is the Trump administration or a broader political swing from left to right, or governments and businesses rolling back diversity and inclusion (DEI) requirements.

“My view is that what we are seeing is a short-term hiccup, perhaps because we may have gone too far, too fast, and this has now been labelled woke. But the longer-term direction will remain the same.”

Citing climate change again, he notes the fundamentals driving the ned for change are widely accepted and the effects are being observed, so climate governance pressures will continue to grow.

“It seems that regardless of the current pushback, society is unlikely to go back to thinking child labour is a good thing and pollution is a good thing. The challenge for directors is to keep their focus on the long term, while riding out some of the short-term noise.”

Expenditure on health, safety and the environment (and quality) can be difficult to justify in the sense of visible return on investment, but that doesn’t mean it isn’t adding value, Parkes says.

“At the strategic level, return can be a lack of cost imposed by an event. One of the reasons that can be tricky to value is because it is often hidden on the balance sheet. The cost of not complying with local laws, for example, is that at some point you can, or will, be prosecuted. Then it becomes a direct cost, plus the intangible reputational cost etc.

“If you lose a contract because your products have not met their ESG requirements, then that is a direct cost. Losing the licence to operate can have an industry-wide indirect cost . . . and so on.”

HSE has a Global Safety Index platform which measures multiple aspects of performance before and after the implementation of new policies and strategies. This can help boards assess the direct value of their investment. 

“Whether it is improving internal capability or making changes to your operational effectiveness around health, safety and environment, we can measure the before and the after state. If a board is considering ‘why invest in increased capability, or more health and safety capacity, or operational efficiencies to drive ESG’, we can measure the before and after – in terms of what has changed inside the business.”

The Global Safety Index can also provide boards with a means to benchmark outcomes across sectors and see how the organisation has improved over time and against competitors, he says. 

For larger organisations, broadening the strategic role of health and safety (by also considering the environment) may mean, for example, the Health and Safety Committee takes on the ESG mantle, Parkes says.

“That depends on the size of the business. In New Zealand, we have a lot of SMEs where, realistically, it may not be practical to take a thoughtful, long-term strategic perspective on ESG. They may need to concentrate in a few areas that are specific to their business and ensure they meet legal requirements. 

“However, at the top end of town – the Air New Zealands and the Fonterras – incorporating ESG thinking into health and safety makes sense. You can’t unpick health and safety from modern slavery, from supply chain management, from climate change and reporting. It’s all part the same challenge. 

“That’s where I think New Zealand has some maturing still to do. We still think about health and safety as ‘slips and trips’. There is an opportunity to leverage good work in that space for so much more.”