SAFETY PERSPECTIVES

Companies Investing in Health & Safety Have Higher Stock Returns

Posted by  Esteban Tristan, Ph.D.

safety-roi.jpgWhile worker health and safety is a top priority for many organizations today, it can still be a tough sell to invest significant amounts of time, money or resources into preventative efforts that do not always have a highly tangible or swift return on investment. In the past decade, however, we have seen an increasing number of studies showing that investing proactively in safety can result in sizeable returns on investment. For example, a Liberty Mutual study cited by the American Society of Safety Engineers found that for every $1 spent on safety, they saved at least $3, with an average return of $4.41. Similar estimates have been suggested by different researchers and organizations, including OSHA.

But what is the potential impact on a company’s overall performance in terms of profitability? In other words, do companies that invest heavily in health and safety actually have higher average returns to their shareholders? A study published in the American College of Occupational and Environmental Medicine in 2015 compared the stock market performance of companies who had received high scores on the Corporate Health Achievement Award (CHAA).1 The CHAA was created in 1995 by the American College of Occupational and Environmental Medicine (ACOEM) to recognize “the healthiest, safest companies and organizations in North America.” This award is given annually to organizations that demonstrate outstanding achievement and excellence in various areas of employee safety, health and well-being. The process rates organizations on 17 different standards that generally fall into either the Safety or Health domain, and each organization is evaluated on the quality of its programs related to each of these standards, the deployment of these programs, how consistently their associated outcomes/results are measured, and whether they are being tracked over time.

The authors of this study analyzed the relationship between CHAA scores and stock performance under six different models, or “portfolios.” Each portfolio consisted of a set of organizations who achieved or surpassed a different set of minimum CHAA scores on the Health domain, the Safety domain, or both. Examples of the standards under the Health domain were: Health Information Systems, Health Evaluation of Workers, and Health Promotion and Wellness. Meanwhile, some examples of the standards they used under the Safety domain were: Workplace Hazard Evaluations, Inspections and Abatement, Education Regarding Worksite Hazards, and Occupational Injury and Illness Management.

The results found that for all six company portfolios, the average stock performance of companies with high CHAA scores consistently outperformed that of the S&P 500 standard index from 2001 through 2014. Furthermore, the portfolio of companies that had high scores on the safety standards had an average return of 319% versus only 105% for the S&P 500 index. This is a difference of over 200% in stock market performance. Companies that had high scores on both the Health and the Safety standards had the highest overall return – 333%. These results actually support an earlier study in 2013 which found similar results.2 That study showed that an initial $10,000 investment in publicly traded companies who had received the CHAA outperformed the S&P index using four different financial models.

These results of these studies further reinforce that investing in health and safety is indeed smart business. While the authors were careful to remind us that correlation is not causality, their results certainly imply that there is a strong relationship between investing in health and safety and having greater financial success. Given the fact that the two studies looked at time periods between 13 and 15 years, it means both of them included the worst part of the recent financial crisis, which began in the fall of 2008. Personally, I was impressed to see that the companies with high CHAA scores outperformed the S&P index throughout that entire time period; Figures 1 and 2 below show that while all companies took a financial hit from roughly 2008 to 2010, this trend still held throughout the crisis.

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We may all intuitively know that health and safety efforts save lives and money. However, I still hear from many safety professionals in several companies who are clearly understaffed, have a non-existent budget or who face multiple obstacles when trying to make a case for safety. Hopefully, results from studies such as these can help safety professionals to make an even stronger case for why it’s not only necessary, but also financially advantageous, to allocate money and resources to health and safety functions in the organization.

6 Tips to Building a Strong Safety Culture

1. Fabius, R, Loeppke, RR, Hohn, T, Fabius, D, Eisenberg, B, Konicki, DL, & Larson, P. (2015). Tracking the market performance of companies that integrate a culture of health and safety. Journal of Occupational and Environmental Medicine, 58, 3-8.

2. Fabius, R, Thayer, RD, Konicki, DL, et al. The Link between workforce health and safety and the health of the bottom line: Tracking market performance of companies that nurture a culture of health. Journal of Occupational and Environmental Medicine, 55, 993-1000.

Tags:   employee safety, safety culture, safety leadership, safety management, ROI

Esteban Tristan, Ph.D.

Esteban is the Director of Safety Solutions at Select International. He manages the development and implementation of all safety solutions and services, which address some of the critical challenges faced by organizations today in workplace safety.

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