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Executive Perspectives

EXECUTIVE PERSPECTIVE: Corporate Sustainability Strategy Starts with Employee Health

Mark Tulay

26 Feb 2019

Increasing numbers of companies today recognize the value of having a corporate sustainability strategy, but few recognize the impact that they have on the health of their employees and communities. By not prioritizing and focusing on health, those companies are missing a golden opportunity to mitigate risks and create long-term value for their business and their investors.

Environmental, social and governance (ESG) reporting by companies has been on the rise over the last decade, increasing to 72 percent in 2017 from 41 percent in 2005, according to a KPMG survey. Investors also are now paying more attention to ESG ratings and practices.

However, across the board, companies are not giving enough weight to human capital in the “Social” component of their ESG strategy. What’s more, they are lagging in important employee health-related disclosures. There is a “ripple effect” when it comes to health; healthy employees positively impact the health of their families, and consequently, their communities. New research from the Robert Wood Johnson Foundation (RWJF) and the Global Reporting Initiative (GRI) shows that certain health practices are hardly represented in major ESG reporting frameworks. For example:

  • Employer-based health insurance appears in 0.5% of frameworks
  • Physical Environment appears in 0.3% of frameworks
  • Financial Literacy appears in 0.3% of frameworks

To offer a much-needed solution to businesses and investors alike, RWJF and GRI developed a new ESG reporting framework – A Culture of Health for Business – designed to enable the private sector to contribute more effectively to public health. This framework contains essential employee and community health metrics that inform decision-making for businesses, and recognizes the significant impact they have on corporate bottom lines, as well as on society at large.

Culture of Health for Business Framework: Key Elements

The Culture of Health for Business framework is built on an extensive review by analysts involved in the project of existing data around programs, benefits, investments, and partnerships that have a demonstrated connection to improvements in key business indicators such as productivity, brand, and financial performance.

The framework starts with four guiding principles that lay the foundation for the private sector’s critical role in building and promoting societal values around health, as well as articulate the changing expectations of both businesses and investors to provide further leadership and contributions to population wellbeing.

The framework further identifies 16 business practices that have shown to promote population health while also demonstrably improving key business indicators. Some of the practices are considered fundamental to corporate health, such as Occupational Health & SafetyHealth Insurance, and Community Environmental Impacts. Other practices embody more innovative expectations of a responsible corporate citizen, such as Pay Practices (reporting on wage policy and satisfaction; wages make up the largest share of income, an important determinant of health),Social Capital & Cohesion (encouraging links, shared values and understanding that enable individuals and groups to trust each other and work together, thereby improving mental and emotional well-being), and Health Culture (represents the interaction of personal and organizational values and norms and business performance that creates an environment supporting of physical, mental, spiritual and social well-being). All 16 practices contribute to long-term business success.

How to Integrate a Culture of Health into Your Business

In recent years, more U.S. companies have implemented foundational health programs and policies to expand awareness and change employee behavior. Some have gone a step further and implemented programs that reach employee families and communities, as did CVS Health, when it banned all tobacco products, leading to a powerful impact on our public health. As a result, tobacco sales decreased across all retailers.

But creating a true Culture of Health requires a commitment to measuring the health of employees and communities. This type of data is essential for shifting to longer-term thinking that is currently underrepresented in quarterly reports and shareholder communication.

Why It is Important for Investors Too

Aside from obvious benefits for companies of having healthy employees and communities, which include less downtime, greater productivity, higher retention, lower cost, reduced-long term risk and a stronger talent pipeline, there are major benefits for investors. Incorporating employee health factors into ESG analysis and reporting will enhance investors’ ability to identify companies with superior business models and strategies. Health can also have an impact on outcomes and in turn, a company’s valuation. At CECP, we have found that focusing on human capital and health as part of long-term planning delivers better corporate performance. Besides, there are consequences to not investing in health that impact the bottom line.

According to related research from the Robert Wood Johnson Foundation, not integrating health into business operations can lead to lost revenue of up to $2,250 per employee every year. Furthermore, the absence of paid family leave has been associated with a range of negative maternal mental and physical health outcomes, including increased risk of depressive symptoms and poor mental well-being for mothers.

“The World Needs Your Leadership”

In his 2019 letter on corporate governance, BlackRock CEO Larry Fink noted that we need corporate leadership now more than ever before. In particular, we need leadership to pay closer attention to the health of today’s workforce. The shift away from a narrow focus on short-term financial returns and metrics to a more expansive, long-term focus on human capital and safeguarding public health is an idea whose time has come. Companies and investors that remain on the sidelines will sacrifice their opportunity to shape their own and the planet’s future.

 

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