**This article was published in the January edition of the Journal of Sustainable Finance and Banking produced by Cornerstone Capital. To access the public section of this publication, click here.**
By Shahnaz Radjy and Daniel Malan
Human capital is at the heart of most successful businesses, yet at a time when New Year’s resolutions abound on an individual level — with a majority being health and well-being focused as many of us strive to eat better, exercise more, stop smoking, etc. — too many companies are focused on business as usual as well as how to improve their bottom line, and do not link employee health and well-being with corporate performance. New research suggests this is short-sighted.
Three studies recently published in the Journal of Occupational and Environmental Medicine (JOEM) by workplace health experts including Ray Fabius, Ron Goetzel, and Ron Loeppke among others, found that companies investing in employee health outperformed their S&P 500 peers by 7-16% per year over more than a decade. These companies were identified based on their receiving evidence-based awards such as the C. Everett Koop Award or the American College of Occupational and Environmental Medicine (ACOEM) Corporate Health Achievement Award, as well as scoring highly on the HERO self-assessment.
The JOEM studies do not prove cause and effect but do confirm a link between best-in-class workplace health programs and improved stock performance. What does this mean, practically speaking? That investing in evidence-based employee health programs is not a bad allocation of resources, and may be a useful proxy for other highly effective business practices as well as good governance.
It also means that boards of directors, shareholders, and investors may have a vested interest in starting to ask questions about employee health and wellbeing. Companies willing to be transparent about how they are managing their human capital — including identifying and dealing with material risks not limited to occupational safety and health but extending to current day trends such as obesity, diabetes, and cancer — are most likely doing more and better, building a culture of health both within their corporate walls and beyond.
McKesson Corporation – one of the 2015 recipients of the C. Everett Koop Award – conducted analyses on their employee health data with a researcher at Harvard University, demonstrating that:
• In three years, engaged adult participants increased activity levels by 92%.
• Employees who were “medium engaged” or “highly engaged” in the workplace health and well-being program spent between $916 and $1,238 less on medical expenses per employee in 2014 than did “low engaged” employees in 2012 and 2013. This led to overall savings of $4.7 million in medical costs for McKesson.
• Employees self-reported that their on-the-job performance increased from 81.7% in 2012 to 85.3% in 2014. When this increase is converted into dollars using a conservative salary-conversion method, total savings was nearly $7 million each in 2013 and 2014.
Connecting the dots, this means that investing in employee health and wellbeing programs has the potential to reduce healthcare costs and increase productivity.
Learning from the environmental movement and the work of the Carbon Disclosure Project as an example, one way to catalyze such transparency is for companies to start voluntarily reporting on employee health (beyond occupational safety and health). This will encourage a shift from seeing healthcare costs as something to manage in a silo to understanding that investing in employee health promotion and chronic disease prevention is a way to tackle the issue upstream. The report “Reporting on Health: A Roadmap for Investors, Companies, and Reporting Platforms” is a step in that direction, providing specific indicators that corporate leaders, investors, and hopefully also existing integrated reporting platforms such as the IIRC, GRI, or SASB, can build on.
Investors, shareholders, board members or corporate leaders understand that taking care of themselves as individuals is necessary to perform optimally and achieve personal goals. Recognizing that health is a cornerstone of good business means that employee health and well-being is also something to ask about and invest in professionally.
Image credit: ©digitalista/Crystal Graphics via Cornerstone Capital
