If you’re looking to acquire a business that uses heavy industrial equipment in its daily work, operates in dangerous environments or manages some other type of risk on a daily basis, you will pay more for a company that demonstrates excellent risk management practices and processes.

Similarly, if you’re acquiring or investing in a retail business that employs thousands of salespeople, you will find higher value in a company that has a strong wellbeing focus and which consequently has lower staff turnover rates and higher engagement scores.

“These are two different types of opportunity for the creation of value within an organisation,” says Chris Alderson CA, CEO of Construction Health and Safety New Zealand, who has conducted research on the impact of health and safety on firm value, as part of his master’s degree studies.

“One represents an active avoidance of serious accidents through processes, systems and training. The other one is about designing processes that result in lower turnover, greater engagement and, therefore, higher productivity and greater financial success.”

It’s clear that robust, resilient, embedded processes and practices for health, safety and wellbeing (HSW) add to an organisation’s value. So, why don’t accountants report them as an asset, instead of a cost?

Health, safety and wellbeing: asset, not cost

One of the major reasons we don’t currently report HSW as an asset that influences financial outcomes is because it lacks standardised reporting language, Alderson says.

“For a very long time, we accountants have had the ability to explain, in a common language, what we mean by value in the way we trade, and how that value increases and decreases,” he says. “But when it comes to the value in the way we protect and care for human lives, we haven’t reached that level of maturity yet.”

Most organisations report lagging, historical indicators, such as injury rates, legal penalties and compensation claims. However, forward-looking metrics would better recognise the long-term financial benefits of a focused investment in HSW in the workplace.

“Currently, we’re basically putting safety information into annual reports and talking about all of the accidents we didn’t have,” Alderson says. “That’s the major source of perceived success. But to me, that’s verging on safewashing. You’ve heard the term greenwashing. Well, this is safewashing.

“What we’re not reporting is how well controlled the risks are in the business and how engaged my organisation is in terms of keeping people safe. That’s where real value lies.”

How can accountants categorise safety?

Alderson says businesses should begin by categorising HSW into three areas. Each influences financial outcomes, but in different ways.

Those areas are:

• Catastrophic risk: think BP’s Deepwater Horizon explosion, fire and oil spills; the gas tragedy in Bhopal, India; or the Enron scandal. “You don’t get points for preventing a catastrophe,” Alderson says, “but if you have one, the downsides can be limitless. Without robust safety systems, an organisation’s valuation should be downgraded.”

• Critical risk: the second category involves workplace accidents that might cause the death or severe injury of an employee. “It usually happens because someone is undertaking a risky activity, without adequate controls in place,” he says. “This is more about the value in preventing that accident in terms of fines, consequences and disruption to the business.
  “On the plus side, it’s about having a workplace with health and safety management systems that make people feel like they’re not going to be hurt or killed. These same systems lock intellectual property into the organisation and provide some protection from highly volatile labour markets.”

• Chronic risk: this covers mental and physical wellbeing in the workplace. “This is about the great value in having a workforce that shows up, that is engaged, that is not impaired and that contributes to your competitive advantage,” he says.

Is anybody doing HSW accounting well?

For HSW accounting to truly catch on, Alderson says, it will likely take a move by the big four, or by regulators, to begin to demand such evidence in company accounts.

“Plenty of people are doing health, safety and wellbeing well,” he says, “but are they recouping the benefits in terms of hard figures? I doubt it.

“Sustainability is spoken about in the boardroom, and health, safety and wellbeing has always been a part of that sustainability picture. But while we’ve been able to value other parts of sustainability quite well, like the environmental side, we haven’t been able to do that on the safety side of things.”

Financial upsides from robust safety systems come from higher productivity, lower staff turnover, stronger workforce engagement, greater talent attraction, less crises, better brand reputation and much more.

“Right now, businesses consider it a success when they can report on accidents they didn’t have,” says Alderson. “We need to shift the focus to how the controls around risk add value to the business, and the measurable outcomes that result within the workforce, and among other stakeholders.”